Competitive and Concentrated Markets

Characteristics of Competitive Markets

Many Sellers and Buyers

Homogeneous Products

Free Entry and Exit

Perfect Information

Price Takers

competition

Products offered by different sellers are largely similar or identical, leading to _________ primarily on price

Agricultural Markets

Markets for products like wheat, corn, and rice are often highly competitive, with many producers and buyers

Retail Markets

Markets for consumer goods like clothing, electronics, and groceries can be highly competitive, especially with the presence of multiple retailers.

Efficiency, Consumer Choice, Innovation, Lower Prices, Quality Improvement

Advantages of Competitive Markets

lower

Competition leads to ______ prices, benefiting consumers.

Low-Profit Margins, Market Volatility, Lack of Economies of Scale, Overproduction

Disadvantages of Competitive Markets

overproduction

The pressure to compete can lead to ________, resulting in waste and environmental concerns.

higher costs

Firms in highly competitive markets may struggle to achieve economies of scale, potentially leading to ________

Concentrated Markets

market where a small number of firms have a significant share of the market, allowing them to influence prices and other market outcomes

Few Sellers, Differentiated Products, Barriers to Entry, Market Power, Imperfect Information

Characteristics of Concentrated Markets

Few Sellers

The market is dominated by a few large firms, each with significant market power

branding

Firms often offer products differentiated by quality, features, or _________

High

_____ barriers to entry exist, making it difficult for new firms to enter the market and compete

Market Power

Firms can influence prices, output, and other market factors

Oligopoly, Monopoly

Types of Concentrated Markets

Oligopoly

A market structure where a few large firms dominate the market

Monopoly

A market structure where a single firm dominates the market

Oligopoly

Characteristics of what type of concentrated markets?

Interdependence

Non-Price Competition

Price Rigidity

Collusion

Monopoly

Characteristics of what type of concentrated markets?

Single Seller

Price Maker

High Barriers to Entry

Unique Product

Economies of Scale, Research and Development, Stability, Consistency

Advantages of Concentrated Markets

Market Power Abuse, Reduced Consumer Choice, Barriers to Entry, Inefficiency

Disadvantages of Concentrated Markets

Concentrated

Examples of _________ Markets

Technology Industry, Pharmaceutical Industry

Antitrust Laws

Governments implement antitrust laws to prevent monopolies and promote competition

Encouraging Competition

Policies may be introduced to reduce barriers to entry and encourage new firms to enter the market.

Price Controls

In some cases, governments may impose price controls to protect consumers from exorbitant prices in concentrated markets.

Perfect Competition

A theoretical market structure that represents an idealized version of a competitive market

Infinite Buyers and Sellers, Zero Transaction Costs, Instantaneous Transactions, Profit Maximization

Characteristics of Perfect Competition

Imperfect Competition

Market structures that do not meet the criteria of perfect competition.

Monopolistic Competition

Oligopsony

Monopsony

Types of Imperfect Competition

Monopolistic Competition

Many firms sell products that are similar but not identical.

Oligopsony

A market where there are many sellers but few buyers

Monopsony

A market where there is only one buyer

Market Failure

Situations where the market fails to allocate resources efficiently.

Public Goods, Externalities, Information Asymmetry, Monopoly Power

Causes of Market Failure

Correcting Market Failures, Regulating Monopolies, Redistribution of Income and Wealth

Reasons for Government Intervention

Efficiency, Equity, Innovation, Consumer Welfare

Criteria for Evaluation of Market Structures

Supply Curve

Shows the relationship between price and quantity supplied

Demand Curve

Shows the relationship between price and quantity demanded

Equilibrium

The point where supply and demand curves intersect, indicating the market price and quantity

Price Elasticity of Demand (PED)

Measures how much the quantity demanded responds to changes in price.

Cross Elasticity of Demand (XED)

Measures how much the quantity demanded of one good responds to changes in the price of another good.