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

• Price constancy. 🔄

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

• Regulators address