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MARKET STRUCTURES
Laissez-faire allow them to do
Limited govt. intervention
Market structure nature & degree of competition among firms doing business in the same industry There are 4 types of market structure
PERFECT COMPETITION
Why agriculture?
Virtually identical products Many, many competitors Buyers wont shop with you if your prices are too high [Somewhat] easy to become a farmer Not very profitable
IMPERFECT COMPETITION
Monopolistic competition, oligopoly, and monopoly
Most firms/industries in U.S. fall into one of these categories. Results: less competition, higher prices for consumers, and fewer products offered. (That is why perfectly competitive markets are theoretically ideal situations.)
MONOPOLISTIC COMPETITION
Many competitors Similar products BUT Each seller has a UNIQUE difference in their product (product differentiation). They use NONPRICE COMPETITION to show UNIQUENESS. Its easy to enter the industry Must determine the UNIQUE difference buyers want Sellers have very little control over prices Can charge a slightly higher price for a good/unique product Sellers somewhat make profits
Few, 3 or 4, major competitors Similar products, but clearly differentiated between sellers BRAND NAME IS IMPORTANT It is difficult to become a competitor Seller must take large portion of customers from other sellers Strong competition between sellers over prices Collusion is created to fix prices If successful, can be very profitable
EXAMPLES: Oligopoly
Automobiles by country of Breakfast cereals manufacture 3 or 4 major USA: Ford, GM, Dodgemanufacturers Chrysler (Kelloggs, General Japan: Toyota, Honda, Mills, Post, Quaker) Nissan Italy: Ferrari, Lamborghini, Masserati Germany: Mercedes, BMW, Audi, Porsche
MONOPOLY
ONE competitor Unique product no other like it Very difficult to become a competitor Would need to steal HALF the buyers Seller has total control over prices No equilibrium price
EXAMPLES: Monopoly
Illegal In some cases, the govt. believes it is in the best interest of the consumer to have a LEGAL monopoly and no competition between firms
Examples:
Public transportation Electric power Water/trash utilities
Types of Monopoly
Natural monopoly costs of production minimized because a single firm produces the product. (Utility companies) Geographic monopoly 1 firm monopolize in 1 area. Technological Monopoly ownership/control of a manufacturing method, process, or other scientific advance Government monopoly owned and operated by govt.
IN GROUPS OF 3 or 4, YOU WILL CREATE STORYBOARDS FOR ALL 4 MARKET STRUCTURES WE JUST COVERED. USING YOUR TEXTBOOK P.169-177 (&NOTES), YOU WILL INCLUDE THE FOLLOWING ON YOUR STORYBOARD: TITLE OF MARKET STRUCTURE DESCRIPTION IMAGE EXAMPLES HOW DOES YOUR MARKET STRUCTURE MAXIMIZE PROFITS? READING CHECK QUESTION (Write out question)
PG. 169-177