AGENDA Mon 3/5 & Tues 3/6 QOD # 19: “Stupid is as stupid does.” Review Quiz Review HW Taste Tests Monopolistic Competition Oligopoly “Luke, I am your father!” HW: pg 189 #1-5; pg 195 #1-5 –Study for Market Org Quiz –Stock Market Company Analysis Summary Sheets & Printout #1

QOD #19: “Stupid is as stupid does.” As you watch the clip from “Forest Gump,” note the process related to Bubba Gump Shrimp’s position in the shrimping market. 1.Before the hurricane, how does the shrimping industry resemble a perfectly competitive market? 2.How does the hurricane change the market price and quantity of shrimp? (Use supply & demand graphs to illustrate.) 3.How did the hurricane create a monopoly for Bubba Gump Shrimp? Use the characteristics of a monopoly to support your answer. 4.Do you think Forest can maintain his monopoly status over time? (In other words, are there barriers to entry?) Explain.

Taste Tests Your task is to analyze each of the products to determine which is the brand name item. –In your team, SHARE some of each of the crackers (A & B) –Also, examine the plastic sandwich bags (A & B). –Finally, examine each of the paper towels (A & B). Consider texture, color, and taste. Last, select which of the two products (A or B) would be the higher priced item.

Results of Price Check Product A Product B

Monopolistic Competition The Characteristics of Monopolistic Competition 1.there are many buyers and many sellers 2.firms produce and sell slightly differentiated products 3.there is easy entry into and exit from the market 4.Price searchers –sell slightly different products –produce Q when MR = MC – sell at the highest price at which they can sell all of their output

How are Monopolistic Competitor’s products different? the product itself may actually or appear to be different in some way –D–Differ by location, service or perceived quality Location: gas station / convenience Service: Nordstrom / Supercuts Perceived quality: Hamburgers / Clothing

Competitors and Monopoly Many businesses would like to become a monopoly –they advertise perceived differences Competition depends on two factors: 1.How close to unique the product is 2.How easy it is for sellers to enter the market

AGENDA Wed 3/7 & Thurs 3/8 Review HW (pg 189 #1-5; pg 195 #1-5) Oligopoly “Luke, I am your father!” HW:; pg 198 #1-15 RQ –Study for Market Org Quiz –Stock Market Watch

Sec 4 - Oligopoly The Characteristics of an Oligopoly 1.there are few sellers 2.firms produce and sell either identical or slightly differentiated products 3.there are significant barriers to entry into the market 4.oligopolies are price searchers –face intense competition from current sellers –barriers prevent competition from new sellers

Identifying Oligopoly Industries Economist determine whether a market is an oligopoly by looking at the percentage of sales accounted for by the top four firms in the industry –6 major film studios = 90% of revenue 20 th century, Warner Brothers, Paramount, Columbia, Universal, Walt Disney Dreamworks (Viacom bought—owned by Paramount) –2008 became independent again but distributed by Disney Leading Indies: Lionsgate, Summit Entertainment, MGM (former Biggie!) –4 music companies = 80% of revenue Sony, EMI, Universal, Warner –6 book publishers –3 television networks ( ) ABC/Disney CBS NBC Universal 2 added since –Time Warner –News Corporation (FOX) Rule of 3 (markets often become an oligopoly of 3)  Orwell’s 1984 –Food processors: Kraft, Nestle, PepsiCo

“Luke, I am your father.”

Cartels A cartel is a group of business that get together to eliminate or reduce the competition they face from each other. A cartel agreement is an agreement that coordinates group activities to reduce competition and raise profits cartels are weak because there is a strong monetary incentive to violate the agreement –eg: OPEC

Who is in Competition? It may appear that buyers and sellers are in competition with each other The real competition, however, is between sellers for buyers The threat of competition from other sellers ends with sellers aligning with buyers –ex: brand devotion