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Do Now. Do you believe Wal Mart is “evil”/bad or are they just a smart corporation? . Models of Competition . Market Structure. Models of Competition. Def : a description of the type of market that a particular business or industry operates in. Also know as Market Structure .

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Do Now

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  1. Do Now • Do you believe Wal Mart is “evil”/bad or are they just a smart corporation?

  2. Models of Competition Market Structure

  3. Models of Competition • Def: a description of the type of market that a particular business or industry operates in. • Also know as Market Structure.

  4. 4 Types of Models of Competition • Perfect competition • Monopoly • Monopolistic competition • Oligopoly

  5. Perfect Competition • Def: A market structure in which a large number of firms (businesses) produce the same product

  6. Four Conditions for Perfect Competition • Many buyers and sellers- people have lots of options to choose from when they buy. 2. Identical products – No difference in items they are exactly the same

  7. Four Conditions for Perfect Competition (cont.) 3. Informed buyers and sellers- buyers know the prices and qualities of goods. 4. Free market entry and exit- Business can enter and exit the market when they want

  8. Types of Businesses • Farmer’s Market • - Have many buyers and sellers • - Veggies are identical (a carrot is a carrot) • - Buyers can compare prices and quality (informed) • - Farmers decide to go or not

  9. Are they many perfectly competitive business? • NO- All 4 conditions must be met. • Ex: Products are rarely identical

  10. Barriers of Entry • Def- Factors that make it difficult for new firms to enter a market • Start up costs- costs needed to create and enter a market (rent, machines, labor) • Technology- (ex: software and pharmaceutical companies)

  11. Monopoly • Def: A market dominated by a single seller. • They take advantage of their monopoly power and charge high prices • Natural Monopoly- Allowed to exist because the market runs better with just one firm Ex: Monroe County Water Authority

  12. Government Monopolies • Patents: Licenses that give inventors exclusive rights to sell their product for a time.

  13. Monopolistic Competition • Def: Many companies compete in an open market to sell products that are similar but not identical

  14. Four Conditions of Monopolistic Competition • Many firms- little start up costs=lots of firms 2. Few artificial barriers to entry- low barriers 3. Slight control over price- can raise prices because products are a little different. 4. Differentiated products-Can distinguish their product from others

  15. What Types of Businesses are Monopolistically Competitive? • Lots! Most markets exist in this model. • Ex. Soft Drinks- Coke Pepsi, Wegmans, etc • 1. Many firms (choices) • 2. Inexpensive to produce (few barriers) • 3. Coke more expensive (control Price) • 4. Some like Coke more than Pepsi (different products)

  16. How to get customers? • Through Nonprice Competition : a way to attract customers through style, service or location but not a lower price.

  17. 4 Types • 1. Characteristics of Goods: Firms distinguish products through size, color taster etc. • 2. Location of Sale -Convenience stores

  18. 3. Service Level- Can charge higher price because they offer a higher level of service. Ex McDonalds vs Fancy rest. • 4. Advertising Image- Advertising creates differences between products

  19. Monopolistic vs Perfect Comp.

  20. Oligopoly • Def: A market dominated by a few, large firms • Ex: Cartels • OPEC (Organization of Petroleum Exporting Countries)- Countries that control the oil supply and manipulate prices of gas

  21. How do they work? • Collusion- Agreement between members to set prices and production levels • Price Fixing- Agreement to sell at the same or similar prices • Both are illegal in US

  22. Do Now • Please answer the following questions: • 1) Describe the term monopoly • 2) What is the MAIN difference between monopolistic andperfect competition • 3) What are some barriers of entry to start a business? • 4) How do Cartels hurt competition?

  23. Market Power • Def: the ability of a company to control prices and output • Markets dominated by monopolies and oligopolies have great market power • Markets with many sellers (mono and perfect comp) have little to no market power

  24. Predatory Pricing • Def- setting the market price below cost levels for the short term to drive out competitors. Firms in perfect comp. and mono comp. do this to gain market power Ex: Open up my pizza shop and sell slices for $1 even though it costs $1.50 to make. I can raise the price later if I drive out competition.

  25. Government and Competition • The Government keeps firms from controlling prices and supply of important goods. Antitrust Laws are laws that encourage competition and break up monopolies/oligopolies in the marketplace.

  26. 4 Forms of Anti-Trust Laws • Regulating Business Practices-gov’t intervenes if too powerful • Breaking Up Monopolies- (Standard Oil AT&T) • Blocking Mergers- Can stop them • Preserving Incentives-must show benefits to consumer

  27. Deregulation • Def: The removal of some government controls over a market. It is used to promote competition. • Allows for more competition, lower prices, increase in variety but can lead to layoffs and business closings • EX: Airlines in the 80’s

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