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4 Market Structures More Competitive Less Competitive Home
Perfect Competition Monopolistic Competition Oligopoly Monopoly Home
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4 Market Structures Perfect Competition More Competitive
Many Producers Identical products Easy Entry No control over Prices Perfect Competition Demand is perfectly elastic Supply and Demand determine Price Suppliers are Price takers More Competitive Less Competitive Monopolistic Competition Oligopoly Monopoly Examples: Very few examples Some stock and commodities Commodity – exactly the same, no matter who makes it Auctions Fish and fruits vendors selling at the same market Commercial fishing and wood pulp and paper industry Home
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4 Market Structures Imperfect Competition
Producers have some control over price Producers have market power Monopolistic Competition More Competitive Less Competitive Many Producers Differentiated products Few Barriers Entry Some control over Prices Perfect Competition Monopolistic Competition Oligopoly Monopoly Examples: Most common form and extremely common in service industry - A lot of non-price competition- physical/style, service, location, status symbol Shoes, clothing, gas, restaurants Called Monopolistic because brands seem to be unique- brand loyalty Company “monopolizes” its brand Home
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Some control over Prices
4 Market Structures Cooperative Pricing: Price Leadership Collusion Cartel Formation- illegal in US but not in world - OPEC Price wars Imperfect Competition Producers have some control over price Producers have market power Oligopoly More Competitive Less Competitive Few Producers Similar products High Barriers of Entry Some control over Prices Perfect Competition Monopolistic Competition Oligopoly Monopoly Preventing lower prices Examples: Arise due to economies of scale rule of thumb (4 top producers supply 60% of outputs) Bigger producers take advantage of smaller Soda (Coke, Pepsi, Cadbury Schweppes) Light bulbs Airlines (Boeing and Airbus) Tennis Balls- Wilson, Penn, Dunlop, Spalding Automobiles Home
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Substantial control over Prices
4 Market Structures Imperfect Competition Producers have some control over price Producers have market power Price Setters Monopoly More Competitive One Producer Unique products High Barriers of Entry Substantial control over Prices Less Competitive Perfect Competition Monopolistic Competition Oligopoly Monopoly Examples: The Firm is the Industry, Famous – Standard Oil, Microsoft, Major League Baseball There Anti Trust laws but there are also Legal Monopolies Resource monopolies- controlling one resources Government created monopolies (copyrights and patents, public franchise, Licenses)- not intended to protect competitors- hair braiding? Preventing lower prices? Natural Monopolies- when a firm can supply a good or service more efficiently and at a lower cost- gas, water, electricity, and cable TV- they can take advantage of economies of scale. Home
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Monopolistic Competition
4 Market Structures Market Structure Number of Firms Control over Price Types of Goods Barriers to Entry Perfect Competition Monopolistic Competition Oligopoly Monopoly
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4 market structure activity
Divide class into the 4 market structures Perfect competition- +15 students – all get a small piece of candy to sell to teacher- smarties, candy corn etc. Monopolistic competition students (can vary)- each get a similar but slightly different piece of candy- jolly rangers, blow pops Oligopoly- 3 students- receive similar candy- tootsie roll, mm bag Monopoly- 1 student who receives a unique piece of candy- candy bar Explain to students that they are sellers and that you will buy the candy for a price a 5 cents to 25 cents and that you will buy from one seller in each group. To encourage sale and competition offer 1 bonus point for a sale Instruct students to write price down and hide it from others Round 1 – perfct comp and mon comp cannot speak with each other, oligopoly may consult Buy candy – perfect comp price takers, monopoly price setters Repeat round- allow for discussion amongst perfect comp. Three rounds- debrief as yoy continue through and at end When finished- fill in chart
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Oligopoly Game (real life prisoner’s dilemma)
Lowes Lower prices Maintain prices Lower prices Home Depot maintain prices Payoff represents total profits What is Home Depot’s dominate strategy? Why? Does Lowes have a Dominate Strategy? What will they do? Why? Lower prices is a Nash Equilibrium Nash Equilibrium- The best response to knowing what the other the other firm is going to do, it doesn’t benefit to defect.
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Oligopoly Game Lowes Lower prices Maintain prices Lower prices Home Depot maintain prices Payoff represents total profits What is Home Depot’s dominate strategy? Why? Does Lowes have a Dominate Strategy? What will they do? Why? Lower prices is a Nash Equilibrium Nash Equilibrium- The best response to knowing what the other the other firm is going to do, it doesn’t benefit to defect.
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