Market Structures

Perfect Competition An ideal market structure in which buyers and sellers compete directly and fully under the laws of supply and demand.

Perfect Competition Must meet 4 conditions: 1.Many buyers & sellers act independently 2.Sellers offer identical products 3.Buyers are well informed about products 4.Sellers can enter and exit the market easily

Perfect Competition cont. Must have a large number of buyers and sellers to work. Under perfect competition, sellers offer identical products. Buyers choose one product over another because of PRICE.

Monopolistic Competition Sellers offer different products. Elements of Monopolistic Competition: 1.Product Differentiation 2.Nonprice Competition

Monopolistic Competition Product Differentiation: when sellers try to point out differences between their products and other competitors. Nonprice Competition: Competition on a basis other than price. Example: Jeans

Oligopolies Market structure where few large sellers control most of the production of a particular good or service. Also, Ms. Chastain’s favorite economic word!

How Oligopolies Work: Nonprice Competition: usually through advertising and brand names Example: Breakfast cereals Interdependent Pricing: fluctuating price based on competitors

Price Leadership: when one competitor takes the lead by setting the price Price War: undercutting each other’s prices (gas stations) Collusion: secret agreement to set production levels and prices (ILLEGAL) --usually results in higher prices

Monopolies Single seller who controls the market 3 unique things about monopolies: –One seller –No close substitute goods are available –Difficult entry into the market

Types of Monopolies 1. Natural Monopolies: when a single seller can produce the good or service most efficiently.

Types of Monopolies cont. 2. Geographical Monopolies: when companies are not challenged based on the remoteness of their business (a general store) These types of monopolies are declining based on mobility (computers/Internet)

Types of Monopolies cont. 3. Technological Monopolies: when technology is used to develop a new product or improve on an old one

Protected by: 1.Patents: government allows the product to be produced unchallenged for 17 years 2.Copyrights: written works and works of art

Types of Monopolies cont. 4. Government Monopolies: usually basic necessities such as utilities.

Examples: Cable company Utilities General store Patents and copyrights

Early Antitrust Legislation Interstate Commerce Act: in place to control the rates of transporting goods throughout the country Sherman Antitrust Act: set the tone for antitrust legislation. Used to breakup large corporations that had a clear monopoly over an industry such as The Standard Oil Company.

Antitrust Legislation cont. Clayton Antitrust Act: prohibits price setting and price discrimination (offering different prices to different customers) Federal Trade Commission Act: created to investigate unfair methods of competition