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Market Structures. Market Structures. What is the primary aim/goal of businesses? To maximize profits What is competition? Striving against others to reach an objective. 4 Types of Market Structure. Pure/Perfect Competition Large number of buyers and sellers Identical product
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Market Structures • What is the primary aim/goal of businesses? • To maximize profits • What is competition? • Striving against others to reach an objective
4 Types of Market Structure • Pure/Perfect Competition • Large number of buyers and sellers • Identical product • Well informed buyers and sellers • Price Takers! • Low barriers for entry/exit More Competition Less Competition
Pure/Perfecct Competition Many buyer/sellers + Identical Products
Imperfect Competition • Most USA markets are imperfect competition • Farming is perfectly competitive. • A market is imperfect when it lacks one or more of the characteristics of Perfect Competition
Monopolistic competition Large # of Buyers and sellers Product Differentiation Non Price Competition Most markets in USA are monopolistic competition Forms of Imperfect Competition
Monopolistic Competition • Meets all condition of perfect competition except for identical products. • Product differentiation • Monopolistic competitors use nonprice competition • Advertising, giveaways, or other promotions More Competition Less Competition
Monopolistic Competition Gap Levis Lucky Same as pure competition except for product differentiation
Review • Classify each product as perfect comp (pc) or monopolistic comp (mc) • Toothpaste • Wheat • Coal • Books • CDs • Computer software • http://www.youtube.com/watch?v=9Hxy-TuX9fs&feature=related
Oligopoly • A fewvery large sellers dominate the industry • Oligopolists act independently by lowering prices soon after the first seller announces the cut • Collusion: formally agree to set prices • Heterogeneous products • Engage in price wars • High barriers to entry More Competition Less Competition
Oligopoly Few producers control supply and price
Coca-Cola classic Sprite Dasani Barq's Dannon Nestea Rockstar Evian Fanta Fresca Minute Maid Mr. Pibb Powerade Seagrams Ginger Ale & Mixers TAB Coca-Cola Classic
Aquafina Pepsi Mountain Dew Sierra Mist Sobe Lipton Brisk Tea MUG Root Beer Slice Gatorade Dole Juice Tropicana Pepsi-co
Cadbury Schweppes • 7 Up • Canada Dry • Clamato • Dr Pepper • Hawaiian Punch • Mott's • Orangina • Snapple
Toyota • Toyota • Scion • Lexus
Chrysler • Chrysler • Jeep • Dodge
General Motors • Chevrolet • Buick • Pontiac • GMC • Saturn • Hummer • SAAB • Cadillac
Monopoly • Only one seller of a particular product • Few monopolies
Monopoly • One seller dominates the market with no close substitutes • Sets prices • High barriers More Competition Less Competition
Monopoly • Natural Monopoly - efficient production by a single supplier
Monopoly • Geographic Monopoly - small town
TechnologicalMonopoly • In order for the inventor to make money and keep new ideas flowing • Patients on inventions
Government Monopoly • It is a product that the government should provide because they are the government • National defense, disposal of nuclear materials
Market Failures • Inadequate Competition • Lack of competition which causes either buyers or sellers to control the market • Inadequate Information • Consumers or producers lack enough information about a market to allow it to work properly • Externalities • Unintended positive or negative side-effects to a 3rd party because of a market transaction • What are some examples? • http://www.youtube.com/watch?v=DOuBxJNIFkY&feature=related • Public Goods • Goods used by all and directly paid for by none • What are some examples?
4 Ways the Government regulates businesses • 1- Anti-trusts Laws • 2- Non-discrimination laws • 3-Public Disclosure • 4-Federal Agencies p. 180
3-2-1 • 3 things you learned • 2 things you want to learn more about • 1 question