Markets

What are Markets? Markets: where transactions between buyers and sellers take place. Looking at the following businesses, what market would they be a part of?

What are Market Structures? Describes the nature of competition among firms in an industry 4 Types Pure/Perfect Competition Monopolistic Competition Oligopoly Monopoly

Pure/Perfect Competition Many firms (lots of competition, low prices) All producing an identical product. Price is set by buyer (firms are price takers) Few barriers to entering the market Example: fruit/vegetables

Monopolistic Competition Monopolistic Competition: many companies compete with similar products (but NOT identical). Many Firms Few barriers to entering market Slight control over price Differentiation: competing with a business by offering something different BESIDES lower prices. Ex: physical characteristics, location, service, advertising, image Examples: clothing, fast food, hair salons

Oligopolies are the next type of market we’re going to discuss Oligopolies are the next type of market we’re going to discuss. They’re different from monopolistic competition markets because it is VERY DIFFICULT to enter the market.

Oligopolies: where a few, large firms dominate the market. Oligopolies are the next type of market we’re going to discuss. They’re different from monopolistic competition markets because it is VERY DIFFICULT to enter the market. Oligopolies: where a few, large firms dominate the market. Sellers offer similar products. Other sellers cannot easily enter the market. Start up costs are high (very expensive) Already established brands people like and feel loyal to

How Oligopolies Control Prices: Businesses that are considered to be oligopolies are under more gov’t regulation to prohibit fixing prices. If very few firms produce all the goods in a market, they could work together to set prices higher than they’d normally be through supply and demand. How Oligopolies Control Prices: Price leadership- one business sets high price, others follow. Price war- one seller cuts prices very low to win business Collusion- secretly agree to set production levels or prices for products. ILLEGAL Cartels- create artificially high prices and reduce quantity to increase profits. ILLEGAL Cartels are ILLEGAL in the US, but other countries allow them (oil and diamonds) Collusion - Is illegal and carries heavy penalties and fines *** illegal in the U.S. but not in other countries- oil and diamonds have cartels

Monopolies: when a market is dominated by ONE seller. There aren’t many substitutes for the product. It’s too hard to enter the market. If one person or business controls an entire industry, they’d able to make prices as high as they want. That’s bad for the consumer. So monopolies are technically illegal in the US. But there are some loopholes where monopolies are allowed to exist.

Natural Monopolies: When it would be too EXPENSIVE to have multiple businesses in the market. -Ex: utilities (power, water) Geographic Monopolies: when the population and profits are so small, only one seller enters the market Technological Monopoly: one company has a monopoly because they own a patent Government Monopoly: when the gov’t provides the good/service (public goods) Ex: bridges, highways, sewer