Chapter 8. Market Structures Defined by the number of sellers, the product, how easy or difficult it...
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Transcript of Chapter 8. Market Structures Defined by the number of sellers, the product, how easy or difficult it...
Chapter 8
Market StructuresDefined by the number of sellers, the
product, how easy or difficult it is to enter the market
4 Types of MarketsPerfectly competitive MonopolisticMonopolistic competitiveOligopolistic
Perfectly Competitive MarketMany buyers and sellersAll firms sell identical goodsBuyers and Sellers have relevant information
about prices, product quality, sources of supply and so on.
Firms have easy entry into and exit out of the market
Example: Wheat
Sellers in a perfectly competitive market are Price Takers
Price takers are sellers that can sell all of their output at the equilibrium price but can sell none of its output at any other price
Profit is a signal in perfectly competitive markets
Characteristics of a Monopolistic MarketThe market consists of one sellerThe single seller sells a product that has no
close substitutesThe barriers to entry are high
Monopolies are price searchersPrice searchers can sell some of its output
at various prices
A Monopoly Seller is not Guaranteed Profits
Barriers to EntryLegal Barriers
A Public FranchiseEx: U.S. Postal Service
Extremely Low Average Total Cost (Low Per-Unit Costs)Natural Monopoly
Exclusive Ownership of a Scarce Resource
Antitrust and MonopolyAntitrust Laws – legislation passed for the
stated purpose of controlling monopoly power and preserving and promoting competitionThe Sherman Antitrust ActThe Clayton ActFederal Trade Commision ActThe Robinson-Patman ActThe Wheeler Lea Act
The Issue of Natural Monopoly
Characteristics of a Monopolistic Competitive MarketThe market includes many buyers and
many sellersFirms produce and sell slightly
differentiated productsFirms have easy entry into and exit out of
the marketThey are price searchers
How much competition does a seller face?Perfectly Competitive Market – a competitive
situationMonopolistic Market– no competitionMonopolistic Competitive Market – some
competition, but not all buyers will leave with a raise in price. Example: IPOD
Characteristics of a Oligopolistic MarketThe market has few sellersFirms produce and sell either identical or
only slightly differentiated productsHigh barriers of entryThey are price searchers
How much competition?Oligopolists face intense competition,
because their goods are either identical (steel) or slightly different (cars)
Identifying Oligopolistic IndustriesIf only a few firms account for a large
percentage of sales then it is oligopolistic.Example: US automobile industry . Ford,
GM and Daimler Chrysler make up 90% of American made cars sold in US.
Cartel agreement - agreements to restrict competition – ILLEGAL
Is it Buyers v Sellers or Sellers v SellersPrice Discrimination – when a seller
charges different prices to different buyersDifferent customers must be willing and able to
pay different pricesSeller requires a way to tell who will pay moreProduct can not be resold, by the person
paying less