1. Competition and monopolies
Chapter 9

2. Market Structure
The extent to which competition prevails in particular markets.
There are four market structures in the American economy. Perfect competition, monopolistic competition, oligopoly, and monopoly
Pg 232

3. Perfect Competition
Market situation in which there are numerous buyers and sellers, and no single buyer or seller can affect price
There are many farmers selling corn, and there are many buyers such as other farmers, ethanol plants, and other edible and non-edible markets

4. Pure Competition
1. A large market – numerous buys and sellers must exist for the product
2. A nearly identical product – the goods or services being sold must be nearly the same
3. Easy entry and exit – sellers already in the market cannot prevent competition, or entrance into the market. In addition, the initial costs of investment are small, and the good or service is easy to learn to produce
4. Easily obtainable information – Information about prices, quality, and sources of supply is easy for both buys and sellers to obtain
5. Independence – the possibility of sellers or buyers working together to control the price is almost nonexistent

5. What makes perfect competition hard?
The internet
Globalization
The automobile, railroad, and other transportation advances
Small towns, cities

6. Perfect competition is good for society
Low prices
No huge profits for sellers and consumers are only paying for what went into the production. Land, labor, capital, entrepreneurship.
Agriculture is a good example, maybe the closest we have…

7. Imperfect competition
Monopoly – a market situation in which a single supplier makes up an entire industry for a good or service with no close substitutes
Do not have to worry about raising prices (somewhat), losing business, or decreasing quality (somewhat) because there is no other person selling that product, service, or good.
Why can’t other sellers get into business?

8. Barriers to Entry
Obstacles to competition that prevent others from entering a market.
State laws, excessive start up costs, ect…
Economies of scale – low production costs resulting from the large size of output

9. 4 Types of Monopolies
Natural monopolies – government grants exclusive rights to companies such as cable, bus service, utilities. Similar to ….
Government monopolies – held by government itself. Postal service, maintenance and construction contractors

10. 4 Types of Monopolies
Geographic monopolies – rural. One business is enough so other competitors do not try to enter the market and compete. Why are there fewer geographic monopolies now??
Technology monopolies – government grants a PATENT for exclusive right to make, use, or sell an invention for a specified number of years. Government can also offer a COPYRIGHT which is exclusive right to sell, publish, or reproduce creative works for a specified number of years. Why don’t these last as long as the patent or copyright?????

11. Monopolies John D. Rockefeller – Standard Oil
Andrew Carnegie – U.S. Steel - Videos
De Beers – Diamonds
Bill Gates and Microsoft – Computer software
Monsanto – Agriculture Seed (Roundup Ready) (extremely interesting)

12. Monopolies

13. Oligopoly
Industry dominated by a few suppliers who exercise some control over price

14. Oligopoly
Not as harmful as a monopoly, but not as good as perfect competition
Consumers pay more than a pure competition market, but not as much as a monopolistic market
Product differentiation – manufacturers’ use of minor differences in quality and features to try to differentiate between similar goods and services
Read Product differentiation on pg 240

15. Oligopoly Whatever one firm does, the other is likely to follow
Airlines, gas stations, ???
Although this is initially good for consumers, with so few businesses in the market, one could drop out and raise prices in the long run
Cartel – arrangement among groups of industrial businesses to reduce international competition by controlling the price, production, and distribution of goods
OIL

16. Oligopoly Cartel is type of collusion which is illegal
This is because they are seeking monopolistic control
AT&T, Verizon, T-Mobile, Sprint-Nextel are an example of a oligopoly in wireless phone sales
Boeing and Airbus have a duopoly in the airliner market

17. Monopolistic Competition
Market situation in which a large number of sellers offer similar but slightly different products and in which each has some control over price
Advertising is huge in a monopolistic competition
“Name Brands” - expensive but quality
Kellogg, Malt-O-Meal; Nike, Starter; GM, Ford, Dodge

18. Government Policies Toward Competition
Read the Issues in the News on pg 245
Interlocking directorates – a board of directors, the majority of whose members also serve as the board of directors of a competing corporation
John D. Rockefeller. Read pg 246

19. Antitrust legislation
Federal and state laws passed to prevent new monopolies from forming and to break up those that already exist
Sherman Antitrust Act in 1890 – Famous law trying to weaken Rockefeller, Carnegie, and Vanderbilt
This is called trust busting - Video

20. Big Business
Merger – the legal combination of two or more companies that become one corporation
Horizontal and Vertical - monopoly and tickle

21. Conglomerate
Large corporation made up of smaller corporations dealing in unrelated businesses
Food, clothing, shampoo, farming, ….
Proctor & Gamble
Pg 247 has good visual examples

22. Government Regulation
Meat industry, car industry, airliner industry, Food and Drug Act 1906, Progressive Era and the New Deal
Deregulation – reduction of government regulation and control over business activity
1980s and 1990s – conservative movement and Reaganomics – reduce government regulation, reduce government spending, reduce taxes, control money supply to reduce inflation
Read pages 248 and 249 and tell me what you think