1. Chapter 11 - Competition among businesses

2. Market Structures
Characterized by the degree of competition among business in the same industry
Types of Competition:
Pure Competition
Monopolistic Competition
Oligopoly
Monopoly

3. Perfect Competition

4. Perfect (Pure) Competition
A market structure in which a large number of firms all produce an identical product under four conditions
There should be many sellers
Identical goods & services
Complete information exists
Free entry

5. Characteristics of a Pure Monopoly
A monopoly is a market structure with
only one seller in the market
A single seller
No close substitutes
Barriers to entries

6. Perfect Competition Under a Perfect Competition Imperfect Competition
Supply and demand set the equilibrium price
Each firms sets a level of output that will maximize its profits at that price
Imperfect Competition
Refers to market structures that lack one or more of the four conditions

7. 4 Types of Legal Monopolies
Natural monopolies – public utilities (regulated by government) & mass transit systems
Government licenses – Grants a particular business the right to operate without direct competition

8. 4 Types of Legal Monopolies
Patents as monopolies – Gives inventors the private property right to a new product or idea for 17 years
Copyrights and trademarks as monopolies – A copyright is a special monopoly for the lifetime of the author plus 50 years

9. Natural Monopoly
More efficient for only one business to produce the goods
Ex: Marta, Water co.
Government gives permission

10. Geographic Monopoly No other business chooses to compete in that area
Ex: Small town drugstore, Dollar General,
grocery stores (Burton’s)

11. Technological Monopoly
Results from new discoveries and inventions.
The government grants these monopolies through the issue of patents and copyrights
Patents: inventions
Copyrights: publish

12. Government Monopoly
Involves products people need that private industry might not adequately provide

13. Monopolistic (Imperfect) Competition
A market structure with many firms that offer similar
but not identical products (clothing & restaurant
industries)
Differentiated products
Real or imagined differences between competing products in the same industry (“new & improved”)
Customer services
Advertising, giveaways, promotional campaigns
Warranties & support
Prestige – use highly visible labels to differentiate their products

14. Oligopoly A market structure in which a few large
businesses supply most or all products in
a market.
Examples:
Breakfast cereals
Soft drinks
Major appliances

15. How Oligopolies Restrict Competition
Collusion – an agreement in which companies restrict production to raise prices and profits (Organization of Petroleum Exporting Countries or “OPEC”)
“Price-fixing” – all firms in a market agree to charge the same or similar prices

16. Business Mergers
Vertical mergers – a combination of 2 or more companies involved in different steps of a production process (Disney’s merger with Capital Cities/ABC)
Horizontal mergers – the combination of 2 or more companies engaged in the same business (Wells Fargo & Norwest Banks; Starbucks & Seattle’s Best Coffee)

17. Business Mergers
Conglomerate mergers – Combines 2 or more unrelated companies under single management (Liggett & Meyers, a cigarette manufacturer merged with Alpo Dog Food; General Mills owns Izod Lacoste clothing
Joint ventures – Some firms in an oligopoly establish joint ventures with other companies (Toyota & General Motors teamed up to produce the Pontiac Vibe)

18. Marketing
Marketing – everything that takes place between production and purchase (brings buyers & sellers together)
The 4 P’s of Marketing:
Product
Price
Promotion
Place

19. 4 P’s of Marketing
Product – The product must be one that consumers want
Price – Companies have to search for the price that enables them to earn the most profit (they must find the break-even point and not overprice their product)
Promotion – companies must make their product stand out (differentiation)
Place – Location is crucial; customers have to be able to get the product

20. Types of Advertising
Informational advertising – tells potential customers about product characteristics & prices (lower cost & helps consumers make informed decisions)
Persuasive advertising – attempt to persuade consumers to purchase products by offering unrealistic promises