Topic 7 Competition, Market Structures, & the Role of Government

Topics 7 & 8: Day 1 Agenda- Notes Pizza Activity Handout Homework Warm-Up- What do you think a market structure is? What types of market structures do we have in our economy? Homework- Topic 7 & 8 HW-due (12/17) Topic 7 & 8 Current Event-due (12/17) Topic 7 & 8 Test-(12/17)

Market Structure: The type & degree of competition that exists among companies in a certain industry

Barriers to Entry

Pure (Perfect) Competition Simplest market structure Freedom Four Conditions of Perfect Competition: Many buyers and sellers participate in the market Identical products No brand names Same quality No need to advertise Buyers and sellers are well informed about the products No barriers to entry (can enter and exit freely)

Perfect Competition  Supply and demand determine price  A lot of competition between firms (businesses in the same industry)  Prices are usually kept low due to competition

Imperfect Competition If one of the 4 conditions (of perfect competition) is not met you have… Monopolistic Competition, a monopoly, or an oligopoly

Monopolistic Competition  Many companies compete in an open market to sell similar but NOT identical products  Monopolizing a Small part of the market  Four Characteristics of Monopolistic Competition:  Many firms  Few artificial barriers to entry  Slight control over prices (slight price differences)  Differentiated products leads to NON-PRICE competition (Location, advertising, packaging)

Differences Between Monopolistic Competition and Perfect Competition Difference between perfect and monopolistic competition is that monopolistically competitive firms sell goods and services similar enough to be substituted for one another.

Non-Price Competition Advertising Catchy slogans Location

Product Differentiation

Pizza Activity

Topics 7 & 8: Day 2 Warm-Up: What are non-price factors associated with consumer spending? What is the main difference between Monopolistic Competition and Perfect Competition? Agenda: Notes-Oligopoly & Monopoly Market Structure Matching worksheet Ipod Reading Market Structure Matrix

Key Terms Cartel: group of firms that gets together to make output & price decisions Firms join to increase their market power Collusion: an agreement among members to set prices & production levels Price War: competitors cut their prices very low to win business Price fixing: agreement among firms to sell at the same or very similar prices

Some influence on Price: decision mainly based on output A LOT of competition between firms Can Lead To: Price leadership; Price wars; Collusion; Cartel Major Points: Standardized Oligopoly: identical goods produced Differentiated Oligopoly: products are differentiated Generally Higher Prices

Price Wars Hess vs. USA gas in Ballston Spa Monday Hess $2.79 USA $ 2.69 Tuesday Hess $2.68 USA $ 2.67 Wednesday Hess $2.67 USA $ 2.67

Monopoly No Competition-No other firms Extensive control in the market High Prices Four Types of Monopolies Natural Geographic Technological Governmental

Natural Monopolies A monopoly that occurs naturally Ex. Public utilities, franchise, regulation, economies of scale Telephone Public transportation

Geographic Monopoly Occurs because of isolation or abundance of a natural resource

Government Monopoly Involves products that private industry may not adequately provide Ex. Gov’t monopoly on research marijuana; FAA bills that protect gov’t workers from competition; postal system; schools

Technological Monopoly New invention or technique – no competitors yet OR patents or copyrights

Dangers of Monopolies Can cause artificial shortages High prices Denies benefit of competition Not dependent on the market Can gain political power