Miss DangMiss Dang

MARKET STRUCTURESMARKET 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 COMPETITIONPERFECT COMPETITION

EXAMPLE: Perfect CompetitionEXAMPLE: Perfect Competition

Agriculture

Farmer’s

Market

Why agriculture? Virtually identical

products Many, many

competitors Buyers won’t shop

with you if your prices are too high

[Somewhat] easy to become a farmer

Not very profitable

IMPERFECT COMPETITIONIMPERFECT 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 MONOPOLISTIC COMPETITION COMPETITION

Many competitors Similar products

BUT Each seller has a UNIQUE difference in their product (product differentiation).

They use NONPRICE COMPETITION to show UNIQUENESS.

It’s 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

EXAMPES: Monopolistic EXAMPES: Monopolistic CompetitionCompetition

Cell phone companies SIMILARITY: turn on, dial,

make call/text, communicate Many to pick from

Sprint AT&T Boost Verizon Amp T-Mobile

Unique differences: Calling plans Phones carried

Sellers lure (attract) customers with unique differences

Airlines SIMILARITY: take-off, fly

safely, arrive at destination Many to pick from:

United, Delta, Continental

British Airways, Virgin, Lufthansa, AiItalia, Air Swiss, Lan Chile, AeroFlat, etc

JetBlue, Southwest, Alaska, TACA, Northwest

Unique differences Where they go Amenities

Sellers attract customers with unique differences

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: OligopolyEXAMPLES: Oligopoly

Automobiles by country of manufacture USA: Ford, GM, Dodge-

Chrysler Japan: Toyota, Honda,

Nissan Italy: Ferrari,

Lamborghini, Masserati Germany: Mercedes,

BMW, Audi, Porsche

Breakfast cereals 3 or 4 major

manufacturers (Kellogg’s, General Mills, Post, Quaker)

MONOPOLYMONOPOLY

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: MonopolyEXAMPLES: Monopoly

Illegal

In some cases, the gov’t. 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 MonopolyTypes 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.

MARKET STRUCTURE STORYBOARDMARKET STRUCTURE STORYBOARD

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)

MARKET STRUCTURE STORYBOARDMARKET STRUCTURE STORYBOARD

WRITE OUT THE READING CHECK QUESTION & ANSWER IT

PG. 169-177

40 points (10 pts for each market structure)