Perfect Competition: 9.1. Market Structure: -In this chapter, you will learn that businesses are categorized by market structure. -Market Structure: amount.
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Market Structure: -In this chapter, you will learn that businesses are categorized by market structure. -Market Structure: amount of competition a business will face. The first type of business structure is called - perfect competition, which is sometimes referred to as “pure competition”.
Conditions for Perfect Competition: 1.large market: many buyers and sellers 2.similar products: sellers offer identical products. 3.information: buyers and sellers are well informed about products. 4.Low barriers to entry: sellers are able to enter and exit the market freely. 5.Independence: sellers and buyers working together to control price is almost nonexistent.
Prices and Output: - Perfect markets are efficient due to competition. - Prices are usually low. - Production cost are also usually low.
Products: Perfect or pure markets usually deal in commodities. Commodities: Products that are considered the same regardless of who makes them. ex: No. 2 pencils, staples, paper clips
Barriers to Entry: Barriers to entry: Factors which make it difficult for new firms to enter a market. 2 most common barriers to entry: 1.start-up cost: the expenses that a new business must pay before their product reaches the customer. 2.Technology: Some market require a high degree of technological know-how. (plumbing, electrician)
Monopoly: The most extreme case of an imperfect market is a monopoly. Monopoly: a market structure in which a single firm controls the supply of the good or service, as well as the price. Problem of monopolies: they can take advantage of their market power and charge higher prices..
Oligopoly: An oligopoly is a market that is dominated by several large suppliers. Car companies, airlines, and phone companies are all examples of an oligopoly.
Characteristics of an Oligopoly: 1.few sellers. 2.High barriers to entry. 3.Identical or slightly different products. 4.Non-price competition: 5.Interdependence
Problems with Oligopolies: Collusion: an agreement among firms of an oligopoly to set prices and production. (Usually used make greater profits) Cartels: an agreement among firms from various countries to set prices and production in order to keep new firms from entering the industry. * Both are illegal in the United States.
Monopolistic Competition: -Large number of sellers offer similar, but slightly different products. -Each firm has some control over price.
Characteristics of Monopolistic Competition: 1. Numerous Sellers 2. Low barriers to entry 3. Differentiated products 4. Non-price competition 5. Some control over price
Examples of Monopolist Competition: -Usually brand-name items such as; toothpaste, cosmetics, and designer clothes -Competitive advertisement is very important in monopolistic competition. -When successful, advertising allows some firms to sell their product at higher prices.
Antitrust legislation: Antitrust Legislation: law to prevent new monopolies or trusts from forming and to break up those that already exist. Sherman Antitrust Legislation: basically outlawed monopolies. Clayton Act: Another law to protect competition. Allowed the government to make the final decision on some business mergers.
Regulatory Agencies: -Besides antitrust legislation, the government uses regulatory agencies to that oversee various industries. 1. Federal Trade Commission (FTC): regulates product warranties, interstate commerce, and fraud in advertising. 2. Federal Communications Commission (FCC): Regulates, creates, and enforces rules of behavior for broadcasting.
3. Securities and Exchange Commission (SEC): regulates the sale of stocks, bonds, and other investments. 4. Equal Employment Opportunity Commission (EEOC): Responsible for reducing workplace discrimination. 5. Occupational Safety and Health Administration: Regulates workplace environment standards of air, water, and toxic waste. 6. Environmental Protection Agency (EPA): Develops and enforces environmental standards
Deregulation: Deregulation: Means the government no longer decides what role each company can play in the market and how much it can charge its customers. Examples of Recent Deregulation: *Banks *Trucking industry *Airlines *Railroads