Features of a Market. Such as: Ease of entry into the market Low barriers to entry Number of buyers/sellers Forms of competition
This market structure is not real. It is guided strictly by the laws of supply and demand. It is a theory that economist created to show what a true competitive market would look like.
Commodities (ID products) Easy entry/exit Low barriers to entry Many buyers and sellers Consumers are well informed No price control – no market power Example: the oil activity, agricultural products
This is a REAL market structure. You shop in it regularly. It is based on differentiating your products to increase its uniqueness.
Similar products Differentiate So similar you can substitute Easy entry/exit Many buyers and sellers Consumers are well informed Some price control – some market power Since the products are differentiated, you can charge a little more because of its uniqueness. Example: cheeseburger fast food, shampoo
You must have: 5 non-price factors drawn and marked on your shoe Name your shoe Create a slogan Create a logo All of these must be on the front of your shoe. We will vote on Thursday. The winner gets 6 EXTRA CREDIT POINTS ON YOUR TEST!
A monopoly is when one producer sells a good or service. Since he is the sole provider, he can charge whatever price he/she wants.
3 characteristics Sole producer (high market power) No close substitutes High barriers to entry
Natural Monopoly – single producer that produces most efficiently b/c of the economies of scale. Example – power companies Geographic Monopoly – a monopoly due to location. Example – Disney World, the movie theater, Six Flags Technological Monopoly Government Monopoly
Technological Monopoly – a producer is the only one with a certain technology or way of producing. Ex. Patent and copyright. Ex. Polaroid Camera Government Monopoly – the government is the sole producer of a product. Example – water company, 1 st class mail
A market structure where there are only 3-5 producers that produce the good or service
Characteristics 3-5 producers Differentiated products High barriers to entry and high market power Example – cereal industry Kellogg, Post, and General Mills American Cars – GM, Ford, Chrysler/Dodge
Oligopolies compete legally with price wars Differentiation of products
Illegal Oligopolies Cartel – openly announce they are a cartel. They TELL they are a cartel Cartels openly set prices and production Ex. OPEC Collusion – secretly set prices and production. Both are illegal in the US because they set prices.
If they government didn’t step in to regulate markets, do you think problems would arise? YES – that is why we have antitrust acts.
Antitrust acts were created to prevent big businesses from dominating a market and acting like a monopoly or trust.
Interstate Commerce Act – 1887 Regulated trade and did not allow price setting or price discrimination. Sherman Antitrust Act 1890 – prohibits any agreements, contracts, or conspiracies that would restrain trade – too vague – Clayton antitrust act strengthened the wording of Sherman. Federal Trade commission act 1914 – created the Federal Trade Commission (FTC) to investigate allegations of unfair methods of competition.