Economics Chapter 9 Competition and Monopolies
Perfect Competition: Section 1 Market Structure- the amount of competition they face. Market Structure- the amount of competition they face. Perfect Competition Perfect Competition A Large Market- many buyers and sellers. A Large Market- many buyers and sellers. A Nearly Identical Product A Nearly Identical Product Easy entry and Exit Easy entry and Exit Easily Obtainable Information Easily Obtainable Information Independence Independence
Perfect Competition Prices are set by Supply and Demand. Prices are set by Supply and Demand. Information is the key Information is the key Agriculture as an Example Agriculture as an Example Farmers have no control of price, set by the market. Farmers have no control of price, set by the market. Demand inelastic while supply is dependent on outside factors. Demand inelastic while supply is dependent on outside factors. Economic efficiency stressed. Economic efficiency stressed.
Monopoly, Oligopoly, Monopolistic Competition Monopoly- single supplier controls market. Monopoly- single supplier controls market. Raise prices but not too high, law of demand kicks in. Raise prices but not too high, law of demand kicks in. Barriers to entry- They don’t allow new companies. Barriers to entry- They don’t allow new companies. State Laws- electric companies State Laws- electric companies “excessive money capital costs”- Steel production “excessive money capital costs”- Steel production
Types of Monopolies Natural- Government grants exclusive rights. Cable, utilities, bus companies Natural- Government grants exclusive rights. Cable, utilities, bus companies Geographic- business is isolated Geographic- business is isolated Technological- patents and copyrights Technological- patents and copyrights Government- roads and bridge construction Government- roads and bridge construction
Oligopoly Industry dominated by a few suppliers. Industry dominated by a few suppliers. Some control over price. Some control over price. Product Differentiation- minor differences in quality and features to differentiate. Product Differentiation- minor differences in quality and features to differentiate. Interdependent Behavior- What one does others follow Interdependent Behavior- What one does others follow Collusion- illegally agreeing to raise prices. Collusion- illegally agreeing to raise prices. Cartel Cartel
Monopolistic Competition Large number of sellers offer similar products. Large number of sellers offer similar products. Some control over price. Some control over price. Brand loyalty the key. Brand loyalty the key. Competitive advertising Competitive advertising
Government Policies toward Competition Antitrust Legislation and Mergers Antitrust Legislation and Mergers John D. Rockefeller John D. Rockefeller Interlocking directorates- board members serving on competing companies boards Interlocking directorates- board members serving on competing companies boards Sherman Antitrust Act (1890)- prevent monopolies Sherman Antitrust Act (1890)- prevent monopolies Clayton Act (1914) Clayton Act (1914) Merger- combining 2 or more corporations Merger- combining 2 or more corporations Horizontal or vertical Horizontal or vertical Conglomerate- huge corporation Conglomerate- huge corporation
Government Regulation From regulation to deregulation. From regulation to deregulation. 1980s and 90s less regulation and control of certain industries. 1980s and 90s less regulation and control of certain industries. FCC deregulation led to pay-TV FCC deregulation led to pay-TV Foreign competitors the problem for U.S. firms. Auto industry. Foreign competitors the problem for U.S. firms. Auto industry.