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Market ModelsFour Market ModelsPure competitionPure monopolyMonopolistic competitionOligopolyMarket Structure ContinuumPureCompetitionMonopolisticCompetitionOligopolyPureMonopolyImperfect Competition9-2PerfectCompetitionMonopolyMonopolisticCompetitionOligopolyCharacteristics of Perfect Competition: Many small firms Identical products (perfect substitutes) Low Barriers- Easy for firms to enter and exit the industry Seller has no need to advertise Firms are Price Takers The seller has NO control over price. Imperfect Competition3Copyright ACDC Leadership 2015Four Market StructuresPerfect Competition LRATCExample:Agriculture

OutputPerfectCompetitionMonopolyMonopolisticCompetitionOligopolyCharacteristics of Monopoly: One large firm (the firm is the market) Unique product (no close substitutes) High Barriers- Firms cannot enter the industryMonopolies are Price Makers 5Copyright ACDC Leadership 2015Four Market StructuresPure Monopoly LRATCExamples:Allegheny PowerMonsanto

A monopoly wouldnt last long if there were not high barriers to keep other firms from entering. Types of Barriers to Entry1. Economies of ScaleEx: There is only one electric company because they are the only ones that can make electricity ay the lowest cost. This is a natural monopoly - Other Examples?2. Superior Technology Examples?3. Geography or Ownership of Raw Materials Examples?4. Government Created BarriersThe government issues patents to protect inventors and forbids others from using their invention Examples?Barriers to Entry7Copyright ACDC Leadership 2015Characteristics of Oligopolies:A Few Large Producers (Less than 10)Identical or Differentiated ProductsHigh Barriers to Entry Control Over Price (Price Maker)Mutual InterdependenceFirms must worry about the decisions of their competitors and use strategy

PerfectCompetitionMonopolyMonopolisticCompetitionOligopoly8Copyright ACDC Leadership 2015Four Market StructuresOligopoly LRATCExamples:Cell ServiceCars

Characteristics of Monop. Comp.:PerfectCompetitionMonopolyMonopolisticCompetitionOligopolyRelatively Large Number of SellersDifferentiated ProductsSome control over price Low Barriers- easy for firms to enterA lot of non-price competition (Advertising)10Copyright ACDC Leadership 2015Four Market StructuresMonopolistic Competition LRATCExamples:RestaurantsClothing Stores (as well as most retail)