1. Perfect Competition

2. Perfectly competitive markets have many producers and consumers
Products are virtually identical. Products that are identical no matter who produces it is called a commodity. (Ex. Cotton, grain, sugar, crude oil)
# of Producers
Similarity of Products
Producers face few restrictions in entering the market. Competition is great.
Perfect Competition
Producers have no market power, they are price takers. Too many other producers to influence prices.
Ease of Entry
Control over Prices

3. Monopolies

4. One (no competition)
very unique (no good substitutes)
# of Producers
Similarity of Products
Price setters (they can set the price of the market without fear of competition)
Characteristics of a Monopoly
High barriers (prevents other producers from entering the market)
Control over Prices
Ease of Entry

5. History of Monopolies
Trusts: combinations of firms that worked together to eliminate competition and control prices
Standard Oil bought out or bankrupted his competitors until it controlled 90% of U.S. oil sales
Congress passed antitrust laws to limit there formation
John D. Rockefeller and the Standard Oil Company

7. Resource Monopolies
Resource Monopolies: Single producer owns a key natural resource.
Rare because the economy is large and supplies of resources are not usually controlled by one owner
Ex. Diamonds

8. Government Created Monopolies
Musicians Robin Thicke, Pharrell Williams, and T.I. forced to pay $7.3 million to family of singer Marvin Gaye for breaking copyright law
Patents and Copyrights
Legal grant designed to protect intellectual property
Creates a temporary monopoly.
Blurred Lines vs. Got to give it up

9. Government Created Monopolies
“I get it. You are the only market in town. You are expensive. When my daughter's leg broke out in a rash, you were the only place that had hydrocortisone cream ($4.99) near Zion/Springdale. Oh yeah, and when my ankle had bleeding blisters from the new hiking shoes I just bought, you had those fancy gel bandaids ($6.99) that helped me from rubbing my ankle raw the next day…I know I should have been more prepared and brought all those things with me, but if you're like me and forgot a few things, this place probably has it. You've been warned though, so don't be surprised when your bill comes out to $74 for a few things.”
-Review from Trip Advisor April 11, 2014
Public Franchises
A contract issued that gives a firm the sole right to provide a good or service in a certain area.
The Mighty Five

10. Government Created Monopolies
Licenses
Legal permit to operate a business or enter a market
Joe’s Auto Parks in Los Angeles

11. Natural Monopolies
Single firm can supply a good or service more efficiently and at a lower cost than two or more competing firms.
Utility Industries

12. Economies of Scale
Greater efficiency and cost savings that result from increased production
It costs $100,000 to bring a network of pipes to an area
It costs $1,000 per home for a meter
Price of first home costs $100,100
2nd home-$51, th home-$3,000
3rd home-$34,333

13. Oligopolies

14. Small number of producers control the market
Small number of producers control the market. The top four companies control 60% of the market.
Ex. Airlines, automobile, soft drinks, tennis balls, lightbulbs, etc.
# of Producers
Similarity of Products
Products are essentially the same with only minor differences
Difficult to break into an oligopoly because of start up costs and loyalty to known brands
Oligopoly
Exert some control over prices, often influenced by other firms in the market
Control over Prices
Ease of Entry

15. Sometimes an Oligopoly acts like a monopoly
If there is a dominate firm in an oligopoly, they may control prices in two ways
Two examples:
Dominate firm sets the price high, all the other firms do the same. Producers benefit (Price Leadership).
Dominate firm sets the price low, takes business away from competitors, other firms may set prices low too (price war). Consumers benefit.
Sometimes firms in an oligopoly will get together to set production and price levels, this is called collusion.
Collusion is illegal, but still practiced.
In an oligopoly, producers may set up an organization to establish production levels and prices called a cartel.
Cartels are illegal in the United States, but operate world wide.
Organization of the Petroleum Exporting Countries (OPEC)
About a dozen countries that set quotas on oil production and exports—major control of the worlds oil prices.

16. Monopolistic Competition
Many producers and sellers
Ex. Restaurants and hotels
# of Producers
Similarity of Products
Product differentiation: producers seek to distinguish their goods and services from those of other firms.
Monopolistic Competition
Start up costs are relatively low, which allows many firms to enter the market
Control over Prices
Ease of Entry
Control over price is limited
Producers have control over their own brand, but substitutes are available. Too many producers for collusion.

17. Monopolistic Competition
Each company has a “monopoly” on its own brand.
Each brand tries to differentiate themselves from the competition.
Consumers may develop brand loyalty, which gives the company some degree of market power.
Examples: shoes, banks, auto repair, supermarkets

18. Nonprice Competition
Physical Characteristics: producers market the look of their product as different from the other brands.
Ex. shoes
Service: some producers offer better service and can charge higher prices.
Restaurants vs. fast food
Location: a firm may win customers because of a convenient location
Gas stations, motels, casinos, etc.
Status and Image: producers compete on the basis or their perceived status or trendiness. Usually done through advertising