1. Market Structures
Chapter 7

2. Intro
Market Structure = the nature or degree of competition among businesses operating in the same industry
Example:
Soft drinks
cars
There are four different market structures:
1) Perfect competition
Imperfect Competition:
2) Monopolistic competition
3) Oligopoly
4) monopoly

3. 5 conditions that characterize this:
Perfect Competition = a large number of well-informed buyers and sellers who exchange identical products
5 conditions that characterize this:
1) many buyers and sellers
2) buyers and sellers deal in identical products
3) each buyer and seller act independently
4) buyers and sellers are reasonably well informed about products and prices
5) buyers and sellers are free to get into, conduct, or get out of business

4. Very few perfectly competitive markets exist
The closest to satisfying all 5 conditions are local vegetable farmers
Most US businesses fall into the imperfect competition category:
Monopolistic Competition:
Has all the conditions of perfect competition except identical products
Businesses use product differentiation – real or imagined differences between competing products
Example:
All the different companies that make jeans

5. Nonprice competition – using advertising, giveaways, etc
Nonprice competition – using advertising, giveaways, etc. to convince buyers their product is best
Monopolistic competition and profit maximization – similar products usually sell within a narrow price range
Oligopoly = a market structure where few very large sellers dominate the industry
These businesses have the power to cause a change in output, sales and prices in the industry
Examples:
McDonald’s
Burger King
Wendy's

6. Since oligopolists are so large, whenever one firm does something, the other firms usually follow
Example:
Introduction of a new hamburger
Pricing behavior = one business changes its price hoping the others will follow
Monopoly = a market structure with only one seller of a particular product
In the US, only local phone or cable companies come close
Americans traditionally dislike monopolies

7. Types of Monopolies:
Natural monopoly = market situation where costs of production are minimized by having a single firm produce the product
Water, gas and electric companies fall into this category
Competing electric companies would each have to have their own poles and wires
To prevent this problem, the gov’t issues a franchise – the right to do business in an area without competition

8. Geographic Monopoly = monopoly based on absence of other sellers in a certain geographic area
Example:
A drugstore in a town too small to support two drugstores
Technological Monopoly = based on control of a manufacturing method, process or other scientific advance
Gov’t may issue a patent for 20 years or a copyright