Ch. 7: Market Structures

nonprice competition

emphasizing factors other than price to distinguish a product from competing brands

patent

a form of monopoly that encourages firms to develop new products

cartel

a formal organization of producers that agree to coordinate prices and production

monopolistic competition

A market structure in which barriers to entry are low and many firms compete by selling similar, but not identical, products.

perfect competition

market structure with many well-informed and independent buyers and sellers who exchange identical products

natural monopoly

a market that runs most efficiently when one large firm supplies all of the output

price discrimination

The sale of the same product to different groups of consumers at different prices

oligopoly

Market structure with few producers, high barriers to entry, and little competition

monopoly

A market in which there are many buyers but only one seller.

sole proprietorship

A business owned by one person

franchise

The right to sell a company's goods or services in a particular geographic area.

royalty

Generally a percentage of annual sales paid by the franchisee to the franchisor.

commodity

A product that is the same no matter who produces it.

collusion

occurs when competing firms in an industry work together to control prices and increase profits

barrier to entry

any factor which prevents new competition from entering an industry, for example the need for a lot of capital or strict government regulations

start-up costs

the expenses a new business must pay before it can begin to produce and sell goods

differentiation

Making a product different from other similar products

price fixing

the practice of colluding with other firms to control prices

predatory pricing

the practice of charging a very low price for a product with the intent of driving competitors out of business or out of a market

antitrust laws

laws aimed at eliminating collusion and promoting competition among firms

prisoner's dilemma

a game in which two parties are incentivized to act selfishly, resulting in noncooperation that leaves both worse off than if they had cooperated

Sherman Antitrust Act (1890)

Outlawed monopolies and practices that restrained trade, such as price fixing