Market StructuresMarket Structures

The different types of markets and The different types of markets and the way in which businesses the way in which businesses

competecompete

Four Market StructuresFour Market Structures

Perfect CompetitionPerfect Competition Monopolistic CompetitionMonopolistic Competition OligopolyOligopoly MonopolyMonopoly

Terms to understandTerms to understand

Number of firms – How many Number of firms – How many businesses compete in the market?businesses compete in the market?

Barrier to entry – any factor that Barrier to entry – any factor that makes it difficult for a new firm to makes it difficult for a new firm to enter the marketenter the market

Variety of goods – How different are Variety of goods – How different are the products?the products?

Control over Prices – How much Control over Prices – How much control do the firms have over their control do the firms have over their prices?prices?

Perfect Competition (Pure Perfect Competition (Pure Competition)Competition) A market with a large number of A market with a large number of

firms all producing essentially the firms all producing essentially the same product.same product.

Assumptions:Assumptions: The Market is in equilibriumThe Market is in equilibrium All firms sell the same product for the All firms sell the same product for the

same price.same price. No single firm can influence prices.No single firm can influence prices.

They each have such a small share of They each have such a small share of the market.the market.

Four Conditions for Perfect Four Conditions for Perfect CompetitionCompetition

1. Many buyers and sellers 1. Many buyers and sellers participate in the market.participate in the market.

2. Sellers offer identical 2. Sellers offer identical products.products.

3. Buyers and sellers are well 3. Buyers and sellers are well informed about the productsinformed about the products

4. Sellers are able to enter and 4. Sellers are able to enter and exit the market freely.exit the market freely.

MonopolyMonopoly

When there is one company or When there is one company or firm that supplies the market firm that supplies the market with a good or service.with a good or service. Barriers to entry limit other firms Barriers to entry limit other firms

from entering the market.from entering the market. Barriers are the principle condition Barriers are the principle condition

for monopolies to exist.for monopolies to exist. There are many buyers.There are many buyers.

Monopolistic CompetitionMonopolistic Competition

Where many companies Where many companies compete in an open market to compete in an open market to sell products that are similar but sell products that are similar but not identical.not identical.

Each firm holds a monopoly over Each firm holds a monopoly over its own particular product.its own particular product.

A modified version of perfect A modified version of perfect competition with minor competition with minor differences in products.differences in products.

Conditions of Monopolistic Conditions of Monopolistic CompetitionCompetition

1. Many firms.1. Many firms. Lower start up costs allow new Lower start up costs allow new

firms to join the market.firms to join the market. 2. Few artificial barriers to entry.2. Few artificial barriers to entry.

No patents, licenses,etc… No patents, licenses,etc… 3. Slight control over price.3. Slight control over price. 4. Differentiated Products.4. Differentiated Products.

OligopolyOligopoly

A market dominated by a few A market dominated by a few large, profitable firms.large, profitable firms. If the four largest firms produce at If the four largest firms produce at

least 70 to 80 percent of the least 70 to 80 percent of the output.output.

Which Market Structure?Which Market Structure?

1.1. TelevisionsTelevisions2.2. Bottle WaterBottle Water3.3. Cell Phone CarriersCell Phone Carriers4.4. GrapesGrapes5.5. ComputersComputers6.6. PaperclipsPaperclips7.7. City waterCity water8.8. Video Game SystemsVideo Game Systems9.9. CornCorn10.10. Public schoolsPublic schools