Lesson 9 (Market Structures)

Market Structure

• The nature and degree of competition among firms in the same industry.

Pure/Perfect Competition

1. Large numbers of buyers and sellers

2. Buyers and sellers deal in identical products

3. Buyers and sellers act independently

4. Buyers and sellers are well-informed

5. Buyers and sellers are free to enter into, conduct, or get out of business.

Imperfect Competition

• it means the products are slightly different.

Monopolistic Competition

• Lots of buyers and sellers who are well informed, but products are slightly different. 

  Examples:  Wopper vs. Big Mac

• It is the same as pure competition except for product differentiation.

Monopolistic Competitors

• it uses non-price competition

Examples: Advertising, giveaways, or other promotions (MCDO, Pizza Hut, Burger King, KFC)

Oligopoly

• A few very large sellers dominate the industry 

• Collusion: some of this formally agree to set prices

• Sometimes they engage in price wars, which can be very damaging to the company, but great for customers.

• may be characterized by collusion or by non-co-operation.

Examples: Airlines, Beers, Drinks (Coca-Cola Classic, Nestle, Pepsi-Co), Cars (Toyota, Chrysler, General Motors)

Collusion

• an explicit or implicit agreement between existing firms to avoid or limit competition with one another.

Cartel

• is a situation in which formal agreements between firms are legally permitted.

  Example: OPEC

Collusion is Difficult If

• There are many firms in the industry

• The product is not standardized

• Demand and cost conditions are changing rapidly

• There are no barriers to entry

• Firms have surplus capacity

Monopoly

• Only one seller of a particular product

• Many regulations limit them, or they are illegal

• One seller dominates the market for a product with at least 75% control- define by the Sherman Act

Examples:

• Amazon

• Microsoft

• Paypal

• Intel

• Walmart

Natural Monopoly

• Exists as a result of the high startup costs for infrastructure or materials.

• They appear in industries that require unique raw materials, technology or equipment.

• The market can’t handle competition in this product and it is inefficient to have failure

Examples:

• Entergy

• APEC

Government Monopoly

• is the sole provider of a particular good or service and competition is sometimes prohibited by law.

Examples:

• United States Postal Service

• St. Charles Parish Public Schools “You an I…. We are

• St. Charles Parish

Technological Monopoly

• occurs when one company controls manufacturing methods or has rights/ patents to exclusively produce it.

Examples:

• I-pad

• EpiPen 2-Pak

• Segway

Antitrust Exemption Monopoly

• Companies that are considered sporting events or exhibitions, are not a form of commerce, thus do not need to be limited.

Examples:

• NBA

• NHL

• Alistate

• PROGESSIVE

• AA insurance

• Amica

• esurance

• wikicarinsurance.com

Geographic Monopoly

• A condition that exists in a local area or region where one company is the sole provider of a good or service in an isolated area.