MARKET STRUCTURES

What is a Market Structure? ▪ Market Structures, by book definition, is the nature and degree of competition among firms operating in the same industry. More simply put, market structures are the ways in which the market places for specific products are grouped together. Economists have divided this into four groups: perfect competition, monopolistic competition, oligopoly, and monopoly.

▪ Each of you will create a spectrum of the different types market structures that exist in our economy. ▫ Pure Competition ▫ Monopolistic Competition ▫ Oligopoly ▫ Monopoly

What is a spectrum? Underneath each of the market Structures you will need to give me information of each structure. Pure Competitio n Monopolistic Competition OligopolyMonopoly

What information will you need? ▪ Explain/define the market Structure ▪ What are the market structures characteristics? ▪ Profit Maximization (how do each of these structures find the ways to maximize profits when they produce the product?) ▪ 5 examples on your own ▪ Extra information: most of these structures have unique information that I want you to place on your assignment.

Which Structure(s)? ▪ Use your diagram to read about and examine the 4 different types of market structures. ▪ Tell me which structures apply to which of the characteristics. (some have multiple answers)

Chapter 7.2 ▪ Use the Guided Reading page provided to work your way through chapter 7 section 2. Answer all appropriate questions with as much information as possible.

Market Failures ▪ When one of the following conditions are significantly altered it creates a market failure: ▫ Adequate competition must exist in all markets ▫ Buyers and sellers must be reasonably well- informed about conditions and opportunities in these markets ▫ Resources must be free to move from one industry to another ▫ Prices must reasonably reflect the costs of production.

Inadequate Competition ▪ Consequences of no competition ▫ Not using our resources efficiently ▫ Artificial shortages and higher prices ▫ Ability to influence politics by threatening to leave a particular state ▫ Development of monopolies ▫ Both sides of the market

Inadequate Information ▪ Some information needs to find its way to the consumers but is very difficult to obtain; this creates a market failure. ▪ What experience from your life do you feel like you received inadequate information in the purchase of a product?

Resource Immobility ▪ Resources (land, labor, capital, and entrepreneurs) must be flexible in order to create an efficient economy ▪ Why must we as a labor force be “flexible” when we are obtaining work?

Externalities ▪Considered a market failure because costs and benefits are not reflected in the market prices that buyers and sellers pay for the original product ▪Can be good (positive) or bad (negative)… ▫Externality-unintended side effect that either benefits or harms a third party not involved in the activity that caused it

Examples of Externalities: Positive or Negative????? ▪A new factory opens up on 620; there are a lot of smoke stacks coming out of the factory; ▪The government implements new grants to help more people move on to a higher education. ▪The major Ford cars development center opens in the south Austin area. ▪A brand new highway going from downtown through Lakeway is developed. ▪A new neighbor moves in next door and seems to enjoy playing music exceptionally loud.

Public Goods ▪ Products that are collectively consumed by everyone, and whose use by one individual does not diminish the satisfaction or value available to others ▪ What are some public goods that we experience pretty much on a daily basis?(i.e. community parks, fire departments, the armed forces)

▪ Public goods illustrates that while the market is very successful in satisfying individual wants and needs, it may fail to satisfy them on a collective basis.

▪ Write down in your own words what you believe the role of the government should be in society. Think about this locally, state-wide, and federally.

The Role of the Government ▪ To promote and encourage competition ▪ To prevent monopolies and reduce the costs of imperfect competition wherever possible ▪ To regulate industries in which a monopoly is clearly in the best interest of the public ▪ To fulfill the need for public goods

Trusts ▪ A legally formed combination of corporations or companies; was done to take power over a market, basically creating a monopoly. ▪ Government created antitrust legislation in order to prevent the market failure of “inadequate competition”

Antitrust Legislation ▪ Sherman Antitrust Act (1890)→ first law against monopolies which sought to protect trade and commerce. ▪ Clayton Antitrust Act (1914)→ outlawed price discrimination (charging different prices to different customers) ▪ Federal Trade Commission Act (1914)→ right to cease and desist orders (requires a company to stop an unfair business practice that reduces or limits competition among firms) ▪ Robinson-Patman Act(1936) → Strengthen the Clayton Act, especially price discrimination.

Government Regulation ▪ When the government knows something to be necessary and instead of shutting the business down, they have many rules to follow ▪ Goal of regulation is to set the same level of price and service that would exist under competition

Public Disclosure ▪ The requirement that businesses reveal information to the public ▪ The purpose is to provide the market (buyers and sellers) with enough information to prevent market failures due to “inadequate information” ▪ Examples: Food and Drug Administration and the Federal Deposit Insurance Corporation (FDIC)

The Internet and its Effects on Disclosure ▪ How has the internet become such a huge part in the disclosure of information to the public? Think about cost, availability, etc.(6)

Topics ▪ Perfect Competition ▪ Monopolistic Competition ▪ Oligopoly ▪ Monopoly ▪ Market Failure: inadequate competition ▪ Market Failure: inadequate information ▪ Market Failure: Resource immobility ▪ Market Failure: Externalities ▪ Public Goods ▪ Government Regulation (legislation, etc.) ▪ Public Disclosure