Market Structures

1. Microeconomics Market Structures

2. Four Types of Competition • Perfect Competition • Monopolistic Competition • Oligopoly • Monopoly

3. Key Terms • Commodity - PC • Economy of Scale - M • Franchise - M • Differentiation - O • Collusion - O • Cartel – O • Regulation - MC • Merger - MC

4. commodity • Product that is the same no matter who produces it

5. Economy of scale • Factors that cause a producer’s average cost per unit to fall as output rises

6. franchise • Right to sell a G/S in an exclusive market

7. differentiation • Making a product different from other similar products

8. collusion • Agreement among firms to divide market, set prices, or limit production

9. cartel • Formal organization of producers that agree to coordinate prices and production O.P.E.C. – Organization of Petroleum Exporting Countries

10. regulation • Government intervention in a market that affects the production of a good

11. merger • Combination of 2 or more companies into a single firm

12. 3 types of mergers V e C H o r i z o n t a l t n i g c l a o l m e r a t e

13. Altering Competition • Price Fix – agreement among firms to charge one price for the same good • Price War – series of competitive price cuts that lowers the market price below cost of production

14. Market Structure Table

15. Comparing Market Structures • Category Description • Numbers of firms – amount of choice for the consumer • Variety of goods – amount of difference in brands • Control over prices – influence each firm has on the market • Barriers to entry/exit – cost of production, effects of company on the market

16. Comparing Market Structures • Category Description • Start-up costs – type of G/S, knowledge and cost to produce first unit • Regulation – amount of government intervention, how many rules, licensing, subsidies • Example – G/S in that type of market place • Demand curve – compared to a market demand

17. Market Demand Curve $ S E D Q

18. Perfect Competition • Many, virtually unlimited • None, commodity • None, too many choices for individuals, firms • None, low costs, easy to make, no effect • Low, inexpensive lay-out • None, safe, high quality • Tomatoes, craft show

19. Perfect Competition $ S Firm Demand Curve E D Q

20. Monopolistic Competition • Many firms • Differentiated products • Little price control • Small knowledge-base • Production, Distribution, Final G/S • Relatively low, flat marginal returns • Minimal regulation • Clothing, toiletries, autos

21. Monopolistic Competition $ S E Firm Demand D Q

22. Oligopoly • Few firms • Differentiated products • Some control over prices, market control • Specialized knowledge • Production, Distribution, G/S • High start-up costs, good marginal returns • Much regulation • Phone, airlines, banking, entertainment

23. Oligopoly $ S Firm Demand D Q

24. Monopoly • One firm • No variety of good, only one in market • Complete price control, unregulated • No new competition, can’t leave industry • High costs, economy of scale • Public corporation • Licensing, pricing, subsidized • Utilities

25. Monopoly $ S E Firm Demand D Q