Clarifications

1. Clarifications • 1. Stock Project 1st period only- basic chart • http://finance.yahoo.com/ • 2. Liability: legally bound obligation to pay debt— debts can ruin a sole proprietorship's business—sell car to pay loan • 3.2nd period: pure competition—go over again

2. Market Structures

3. Price Leadership: 1 co. lowers price and others follow (Southwest Airlines)—exists in oligopolies • Price Collusion: companies get together set prices—hard to prove (ex: airline company and FBI tapes) • Price fixing: agreement among firms to sell at the same or similar prices—result of price collusion

4. Pure/Perfect Competition • A large number of firms all producing (essentially) the same product • Sell same product at the same price-identical product • Farming, some agricultural produce, stock market • No price setting power and no non-price competition • 4 requirements: • Many buyers and sellers • Identical products • well informed about products • Sellers can enter and exit market freely

5. Imperfect Competition • Factors make it difficult for new firms to enter market = barriers to entry • Leads to imperfect competition

6. Product Differentiation • Emphasis on subtle differences between competing products • Profit from the differences • Features of package or product • Convenience • Aspirin or Bayer • Non-Price Competition (advertising): • Physical characteristics: new size, color, bottle shape • Location- where they are sold • Service Level: higher level of service • Advertising: create apparent differences

7. Monopolistic Competition • sell products that are similar but not identical- (Aisles at grocery store) • More difficult to enter market • Some price setting power (name brand loyalty) • Non-price competition exists • Sodas, grocery products, bottled H2O, dry cleaners, shampoo/conditioner, burger joints • 4 requirements: • Many firms/sellers • Few artificial barriers • Slight control over price • Differentiated products

8. Monopoly • barriers prevent firms from entering market that has one single supplier • 1 seller and any number of buyers (same price) • Unique product • Impossible to enter market • Total price setting power • ATT/ electricity co’s or utilities/ MUD districts/ Center Point energy/Bill Gates/cable

9. 4 types of Monopolies • Technical: new technology develops • Natural: natural gas, electricity, MUD, Center Point, cable, • Government: created by government • Geographic: Location • Price discrimination: sell a product to groups of consumers for different prices

10. Oligopoly • 3-5 firms dominate industry • Identical and different products • Very difficult to enter market—need lots of money • Prices are interdependent • Non-Price competition exists • Big 3 auto makers, Beer, cigarettes, sodas, cereal, TXU, Reliant, Direct electricity, Center Point, television service providers (ATT, direct)

11. Terms • Patent: government issues a patent to a company giving exclusive rights to sell a new good or service (for a specific period of time) • Price war: when competitors cut prices very low to win business—harmful to producers but good for consumers • Cartels: illegal in US– producers coordinate prices and production