Competition & Market Structures

Numerous buyers & sellers Identical productsNo price competitionPerfect informationEasy to enter

Pure/Perfect Competition

FARMING & TRUCKING INDUSTRIES

Examples?

Similar but differentiated products & sellers have limited control over prices

What’s the difference?

AdvertisingQuestion #2?

Market structure in which only a few sellers offer a similar product

Oligopoly

OPEC

They do the same thing, they move together

Question #3

CollusionA formal agreement to set prices

It may knock people out of business

Why are price wars a problem?

“Bags fly free”“Hungry? Why wait?”“The un-cola”“The Beauty of All-wheel drive”“I’m loving it”“Zoom-Zoom”“Live in your world. Play in ours.”

Question #6

http://www.ad-mad.com/slogans

A market situation with only one seller of an economic product that has no close substitutes

Monopoly

Costs of production are lowest when only one firm provides output

Natural Monopoly

It provides a good or service at a lower cost

Why are natural monopolies allowed to exist?

Because no other business in the immediate area offers any competition

Why do geographic monopolies exist?

Is a monopoly that exists because the firm controls a manufacturing method, an invention, or a type of technology.

Technological monopolies

They are patented & copyrighted

Examples???

Because the government either owns and runs the business or authorizes only one producer

Why do government monopolies exist?

Exclusive right to deliver first-class mail

Why has this monopoly eroded over the years?

British East India Tea Company (1600’s) Western Union (late 19th century) Standard Oil (1911) MLB (1922… still disputed 2009) NFL (convicted in the 1980’s) DeBeers (price fixing in 2000’s) Microsoft (settled in 2001)

Examples of Monopolies

formal organization of sellers or producers that agree to act together to set prices and limit output

CARTEL

OPEC:ORGANIZATION OF THE PETROLEUM

EXPORTING COUNTRIES

Ecuador

VenezuelaNigeria

LibyaAlgeria

IraqIran

KuwaitSaudi Arabia IndonesiaAngola

The Price of Oilhttp://www.cbsnews.com/video/watch/?id=4713382n&tag=contentMain;contentBody

REGULATION & DEREGULATION

REGULATION

PROMOTING COMPETITON

PROTECTION CONSUMERS

ENSURING A LEVEL PLAYING FIELD

Antitrust legislation gives the government

the power to break up

monopolies and prevent new

monopolies from forming

Many government agencies protect consumers from

the effects of dishonest

businesses

The government also tries to

prevent business practices that

reduce competition.

DEREGULATION

DEREGULATING INDUSTRIES

Opens up industries to

increased competition,

which leads to lower prices for

consumers