Competition

Competition

Provides: choices, low prices, good service & higher quality goods

Market Structure

extent to which competition prevails in a particular market

Perfect Competition

Numerous buyers & sellers, no single buyer can affect price, price set at equilibrium, price taker, RARE market structure

Monopolistic Competition

large # of sellers offer similar but slightly diff product, most common form of market structure, gain loyalty through nonprice competition

Oligopoly

industry dominated by a few suppliers who have control over the price, interdependence

Cartel

companies working together to control market (illegal)

Collusion

a collection of businesses control the price, production, and distribution of goods to reduce international competition

Monopoly

a single supplier makes up an entire industry, controls supply and determines price

Natural Monopoly

supplier of services, such as utilities, who can produce the largest amount at the lowest cost through economies of scale (lower production costs resulting from large size of output) Ex. pizza menu (price per slice)

Geographic Monopoly

little potential for profit due to remote location, so businesses choose not to enter (ex. theme parks, movie theaters, stadiums)

Technological Monopoly

protecting an invention using a patent or a copyright

Government Monopoly

similar to a natural monopoly, except owned by the gov. Ex: driver license, passport

Barriers of Entry

obstacle preventing others from entering the market - a fundamental cause of limited competition. Lesser competition = greater barriers

5 Types of barriers to entry

1. Strong brand loyalty or identity (Ex. Apple)

2. High initial investment costs (Ex. Airline)

3. Ownership of essential resource (Ex. diamonds)

4. Price manipulation by existing businesses

5. Laws and Policies (Government imposed)

Antitrust Legislation

laws to prevent new monopolies or trusts from forming and to break up those that exist

Sherman AntiTrust Act (1890)

protect trade & commerce against monopolies

Clayton Act (1914)

limited or forbid a number of specific business practices that could lessen competition substantially (collusion, price fixing, group boycotts)

Regulatory Agency

a government body that is created by Congress to implement and enforce specific laws

What regulatory agencies govern

taxation, environment, health and safety, labor, crime, laws specific to an industry

Deregulation

a reduction of government regulation and control over business activities