Business and Market Structure

Perfect Competition

Many sellers with the exact same product, easy to enter the market

Monopoly

A single seller that makes a product with no substitutes, very difficult to enter the market, has complete control over prices

Natural Monopoly

Where it doesn’t make sense to have more than one firm (natural gas, electricity, sewer, cable TV, etc)

Patent Monopoly

Legal protection for an inventor that prevents competitors from copying product for 11 years

Oligopoly

Market structure with very few firms, hard to enter market, varying degrees of control over prices

Pure Oligopoly

Where firms are selling the exact same product

Differentiated Oligopoly

Where firms are selling similar, but varied products

Monopolistic Competition

Where there are many firms in a market that are selling products that are similar but are not identical

Homogenous Product

A product that is identical, even if multiple firms are selling it

Chief Executive Officer

Highest ranking officer in a company

Proxy

A vote in a company election that equals one vote per share owned

Controlling Interest

When a shareholder owns the most shares of a company, therefore having the greatest decision power.

Board of Directors

Board that controls company decisions

Sole Proprietorship

One owner of a business, has complete control over company, gets all the profit, low taxation, unlimited liability, limited life of business

Partnership

Business that has two or more owners, has partnership agreement, profit division, each partner plays a specific role, tax benefits, unlimited liability, limited life.

Stockholder

Person who owns shares of a company

Corporation

Organization of people legally bound by charter to conduct a specific type of business. Limited liability, unlimited life, specialized management, risk is shared, double taxation, less control, restricted in what type of business it can conduct.

Creditor

First person paid after a company liquidates its assets.

Bondholder

Person who hold bonds

Common stock

Share of ownership in a corporation, voting rights in all company proxies, may receive dividends, 3rd to claim assets at liquidation

Preferred stock

Share of ownership in a corporation, little or no voting rights in decisions, higher dividends than common stockholders, paid out before common stockholders during liquidation.

Bond

Loan from a private individual or group

Stock

Share of ownership in a corporation

Limited liability

Investors only lose the amount that they invest and are not personally liable for the company

Unlimited liability

The owner of a business is personally liable for all business decisions and expenses

Dividends

Profits that are given to shareholders

Liquidation

When a company’s assets are sold for cash, aka when the business ends

Liquidation order

1. creditors

2. preferred stockholders

3. common stockholders

Price taker

No control over price

IPO/Initial Public Offering

The proceeds of the sale of stock go directly to the company that is selling stock

Primary Market

Market where companies sell stock and bonds for the first time to people

Secondary Market

Where investors sell previously bought stock and shares to other investors.

Capital gain

Selling something at a higher price than what you bought it for

Diversification

Investing in many different industries

Differentiated product

Unique product with no substitutes