Market Structure
Perfect Competition 1. There are many buyers and sellers 2. Firms produce a standardized product or commodity 3.buyers informed about price, quality, availability 4. Firms easily enter or exit industry Ex. stock
Monopoly Sole supplier of a product with no close substitutes Market Power- ability of a firm to raise price without losing sales High barriers to entry Legal Restrictions Economies of Scale Control of Essential Resources May not earn a profit True Monopolies are Rare Demand supply chart is Market Demand
Problems with Monopolies Resources wasted securing monopoly privilege Monopolies may grow inefficient
Good of Monopolies Economies of Scale Government Regulation Keeping prices low to avoid regulation Keeping prices low to prevent competition
Monopolistic Competition Each firm has market power Product Differentiation Physical Differences Location Services Product Image Costs of Production- Marketing
Oligopoly Market dominated by a few firms Barriers to entry Economies of Scale High Cost of Entry Product Differentiation costs Cartel- a group of firms that agrees to act as a single monopoly to increase profits Collusion- agreement among firms to divide market and fix price
Antitrust US Antitrust activity Promote market structure to increase competition Reduce anticompetitive behavior Antitrust laws FTC Mergers –combination of two or more firms to form a single firm Horizontal mergers Nonhorizontal mergers Flexible merger policy
Regulation of Natural Monopolies Public Interest Special Interest
Competitive trends in the US economy Antitrust Activity Microsoft web browser Deregulation Get rid of regulation Airline deregulation Act International Trade GM adjusting prices for competition Technological Change Online companies