Market Structures and Competition
Firms and Industries
- Firm: for-profit company producing goods/services. 🏢
- Industry: all firms selling the same product/service. 🏭
- Market structures: perfect to imperfect competition, monopoly, oligopoly. 📊
Market Structures
- Perfect Competition: Many sellers, identical product. 🧑🌾
- Imperfect Competition: Many sellers, similar product. ☕
- Monopoly: Single seller, 100% market share. 👑
- Natural/legal monopoly: One efficient firm (e.g., An Post). ✉️
- Illegal monopoly: Suppressing competition. 🚫
- Oligopoly: Few firms dominate; > 50% concentration. 🏦
Perfect Competition
- Rare, ideal for consumers: lowest prices. ✅
- Characteristics:
- Price takers. 🏷️
- Many sellers. 🧑🌾
- Homogenous goods. 🍎
- Free entry/exit. 🚪
- Perfect information. ℹ️
- Profit maximization: MR = MC. 💰
- Examples: Agricultural products, currencies. 🌾
- No advertising. 📢
Price Determination
- Accept market price from supply/demand. 📈
- Horizontal demand curve. 📊
- AR = MR = Price
Perfect Competition - Short Run
- Supernormal Profits (SNP) when AR > AC. 🚀
- Produce where MR = MC.
- Equilibrium: MC = MR.
- SNP attracts new firms. 📉
- Normal profit: AR = AC.
- Short-run loss: AC > AR. 😥
Perfect Competition - Long Run
- Entry/exit until normal profit (AC = AR). ⏳
- Production at lowest cost. 💸
- No advertising. 🚫📢
Benefits & Disadvantages
- Benefits: Lowest cost, minimum prices, efficiency. 👍
- Disadvantages: No economies of scale, little choice, no R&D. 👎
Imperfect Competition
- Common (e.g., hotels, restaurants). 🏨
- Characteristics:
- Price makers. 🏷️
- Product differentiation. ✨
- Free entry/exit. 🚪
- Profit maximization: MR = MC. 💰
Imperfect Competition - Short & Long Run
- Short Run: SNP when AR > AC. 🚀
- Long Run: Entry until normal profit (AR = AC). ⏳
Advantages & Disadvantages
- Advantages: Choice, innovation, normal profit. ✅
- Disadvantages: Not minimum cost, excess capacity, price > MC. ❌
Price vs. Non-Price Competition
- Price Competition: Lower prices. 📉
- Non-Price Competition: Advertising, service. 🎁
Oligopoly
- Few sellers dominate (e.g., supermarkets, banks). 🛒
- Firms are interdependent. 🤝
- Characteristics:
- Few sellers. 🏷️
- Interdependence. 🤔
- Product differentiation. ✨
- Barriers to entry. 🚧
- Collusion may occur. 🤝
Oligopoly - Collusion
- Firms agree (price fixing). 🤝
- Types:
- Pricing policy. 🏷️
- Production policy. 🏭
- Sales territories. 🗺️
- Implicit collusion. 🤫
- Price leadership. 👑
- Limit pricing. 🚫
- Non-price competition is common. 😓
Oligopoly - Advertising
- Persuasive, informative. 📢
- Can increase prices. ⚠️
Policies Against Anti-Competitive Practices
- Consumer education. 🧑🏫
- Industry regulation. ⚖️
- Anti-competitive laws. 👮♀️
Oligopoly - Kinked Demand Curve
- Explains price rigidity. 📈
- Competitors match decreases. 📉
Oligopoly - Long Run
Advantages & Disadvantages
- Advantages: Greater choice, innovation. 👍
- Disadvantages: Exploitation, higher prices, price rigidity. 👎
Monopoly
- Sole supplier, 100% market share. 👑
- Characteristics:
- Sole supplier. 🏢
- Controls price. 🏷️
- Maximizes profit. 💰
- Barriers to entry. 🚧
Monopoly - Sources of Power
- Legal monopoly. 🏛️
- Patent/copyright. 📝
- Control of raw materials. ⛏️
- Economies of scale. 🏭
- Collusion. 🤝
Monopoly - Equilibrium
- Downward-sloping demand. 📉
- MR
Advantages & Disadvantages
- Advantages: Economies of scale, guaranteed supply. 👍
- Disadvantages: Exploitation, inefficient. 👎
Regulating Monopolies
- Prevent excessive prices. 🚫
- Protect taxpayers. 🛡️
Market Concentration
- Number of companies/market share. 🔢
- Concentration ratio. 📈
- Four-firm concentration ratio.
- Concentration Ratio = (S1 + S2 + S3 + S4) / Sector 1
- 0-50%: low. 🟢
- 50-80%: medium. 🟡
- 80-100%: high. 🔴
- HHI: Competition level.
Market Concentration - Regulation
