Presentation on theme: "Lesson 9-1 Market Structure – Market structures are a way to categorize businesses by the amount of competition they face. – Four basic market structures."— Presentation transcript:
Lesson 9-1 Market Structure – Market structures are a way to categorize businesses by the amount of competition they face. – Four basic market structures in the American economy are: perfect competition, monopolistic competition, oligopoly, and monopoly.
Conditions of Perfect Competition – Many buyers and sellers – Similar products – Sellers in the market cannot prevent others from entering market, the initial investment costs are low, and the good/service is easy to learn to produce. – Information about prices, quality, and sources is easy to get. – Sellers or buyers cannot group together to control price. – Supply and demand control the price.
Agriculture as an Example – The agriculture market is close to a perfectly competitive industry. – No single farmer has control over price. – Supply and demand determine price. – Individual farmers have to accept market price. – Demand for agriculture is unique; inelastic.
Benefits to Society – Price will drop to a level that benefits both consumer and entrepreneur. – Economic efficiency. – Resources are used in most productive manner.
Lesson 9-2 Imperfect Competition – Most industries are a form of imperfect competition. – There are three types of imperfect competition that differ in how much competition and control over price the seller has.
Monopoly – Most extreme form of imperfect competition. – A single seller controls the supply and price of product – No substitutes: no competitor offers good or service that closely replaces what monopoly sells – No entry: a competitor cannot enter the market due to government regulations, large initial investment, or ownership of raw materials – Almost complete control of market price – Can raise prices with no fear of competition
– Natural monopolies are providers of utilities, bus services, cable, and have economies of scale, producing the largest amount for the lowest cost. – Geographic monopolies are created due to geographic barriers for competition. – Technological monopolies are the result of inventions that are patented and copyrighted. – Government monopolies are similar to natural monopolies but held by the government. – Monopolies are far less important than in the past, and don’t last as long.
Oligopoly – Dominated by several suppliers and a few sellers who control 70 to 80 percent of the market. – Capital costs are high and it is difficult for new companies to enter market – Goods/services provided by the few sellers are nearly identical – Competition is not based on price but product differentiation is based on consumer perception of the value of one over the other – All the companies are interdependent; change in one will affect the others. – Interdependence can lead to price wars or the illegal act of collusion or teaming up to raise prices – Cartels are international groups that use collusion to seek monopoly power
Monopolistic Competition – Numerous sellers – Easy entry into market – Differentiated product – Nonprice competition – Some price control by the seller – Advertising tries to convince consumers of the superiority of given product, enabling companies to charge more than the market price for a product.
Lesson 9-3 Antitrust Legislation – Rockefeller monopolized the oil industry by creating interlocking directorates and putting Standard Oil people on boards of the competition. – Sherman Antitrust Act (1890) prevented new monopolies or trusts from forming and broke up existing ones. – Clayton Act (1914) sought to clarify the laws in Sherman Antitrust Act by prohibiting or limiting a specific number of business practices. – Federal government must determine whether merging of two companies will significantly lessen competition.
Mergers – Horizontal merger is the merging of two corporations in the same business – Vertical merger is merging of two corporations in same chain of supply – Conglomerates are the merging of two corporations involved in at least four or more unrelated businesses
Regulatory Agencies – Government makes laws regarding business pricing and product quality and uses regulatory agencies to oversee that various industries and services obey these laws. – Deregulation is when the government removes its regulations to increase competition.