Market Structures Lesson IX (Basic Microeconomics) PDF

MARKET STRUCTURES LESSON IX BA Core Course 1- Basic Microeconomics  Market Stracture ❑The nature and degree of competition among firms in the same industry. WE CLASSIFY MARKET STRUCTURES BY ASKING: 1. How much control over price does each firm have? 2. How many...

MARKET STRUCTURES LESSON IX BA Core Course 1- Basic Microeconomics  Market Stracture ❑The nature and degree of competition among firms in the same industry. WE CLASSIFY MARKET STRUCTURES BY ASKING: 1. How much control over price does each firm have? 2. How many firms are competing in the market? 3. How large/what size are each of the firms? 4. What are the characteristics of the products in each market? 5. How easy is it for new firms to enter the market?  4 TYPES OF COMPETITION Perfect Competition Imperfect Competition ✓ Pure Competition ✓ Monopolistic Competition ✓ Oligopoly ✓ Monopoly Pure/Perfect Competition 1. Large number 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 More Competition Less Competition ALL OTHER FORMS OF COMPETITION ARE IMPERFECT COMPETITION imperfect means the products are slightly different  MONOPOLISTIC COMPETITION ✓Lots of buyers and sellers who are well informed, but products are slightly different. Product differentiation Wopper vs. Big Mac vs. ✓Monopolistic competitors use non-price competition Advertising, giveaways, or other promotions Fast food industry is an example More Competition Less Competition  MONOPOLISTIC COMPETITION MC Firms end up in TANGENCY £ EQUILIBRIUM, making normal AC profits. F Firms do not operate at minimum P1=AC1 LAC. Price exceeds marginal cost. D Unlike perfect competition, the MR firm here is eager to sell more at Q1 Output the going market price.  MONOPOLISTIC COMPETITION http://i5.walmartimages.com/dfw/dce07b8c-8268/k2-_ac7cf1a4-0840-41e5-8df3-a0ae9d163e32.v2.jpg http://www.aeropostale.com/graphics/product_images/pAERO1-15562922enh-z5.jpg Gap Levis J.Crew Same as pure competition except for product differentiation  MONOPOLISTIC COMPETITION Are these shampoos/conditioners different? Pantene PhP 750.00 Frederic Fekkai PhP 2500.00 MONOPOLISTIC COMPETITION Are these mascaras different? Maybelline Sisley PhP 250.00 PhP 2000.00  OLIGOPOLY ✓A few very large sellers dominate the industry ✓Collusion: some oligopolies formally agree to set prices ✓Sometimes they engage in price wars, which can be very damaging to the company, but great for customers More Competition Less Competition  OLIGOPOLY The essence of an oligopolistic industry is the need for each firm to consider how its own actions affect the decisions of its relatively few competitors. Oligopoly may be characterized by collusion or by non-co-operation.  COLLUSION AND CARTELS 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. e.g. 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 SAMPLE OF OLIGOPOLY Boeing Air-Bus  OLIGOPOLY Few producers control supply and price  COCA-COLA CLASSIC Coca-Cola classic Fanta Sprite Fresca Dasani Minute Maid Barq's Mr. Pibb Dannon Powerade Nestea Seagrams Ginger Ale & Mixers Rockstar TAB Evian  NESTLÉ SA Nestlé Waters Perrier S. Pellegrino Nespresso Nescafé Carnation Milk  PEPSI-CO Aquafina MUG Root Beer Pepsi Slice Mountain Dew Gatorade Sierra Mist Dole Juice Sobe Tropicana Lipton Brisk Tea TOYOTA Chrysler Toyota Chrysler Jeep Scion Dodge Lexus Chevrolet Saturn Buick Hummer Pontiac SAAB Cadillac GMC General Motors  MONOPOLY Only one seller of a particular product There are very few monopolies Many regulations limit them, or they are illegal One seller dominates the market for a product with at least 75% control. *defined by the Sherman Act http://www.lenco.com/wp-content/uploads/2012/01/Amazon-Logo.jpg https://upload.wikimedia.org/wikipedia/commons/thumb/c/c9/Intel-logo.svg/1280px-Intel-logo.svg.png More Competition Less Competition SOME COMPANIES THAT HAVE JUST RECENTLY LOST MONOPOLY POWER http://the-digital-reader.com/wp-content/uploads/2011/10/kindle-itunes-logo.png http://static6.businessinsider.com/image/539aedc269beddc243d29c52-800-371/netflix_web_logo.png https://upload.wikimedia.org/wikipedia/commons/4/4a/Logo_2013_Google.png https://www.facebookbrand.com/img/fb-art.jpg http://www.kingdomhouse.org/uploads/images/ab_ae_logo_4c.jpg TYPES OF MONOPOLIES  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 cant handle competition in this product and it is inefficient to have failure. Government Monopoly – a government agency is the sole provider of a particular good or service and competition is sometimes prohibited by law. Waterworks Technological Monopoly - occurs when one company controls manufacturing methods or has rights/patents to exclusively produce it. Segway i-Pad Antitrust Exemption Monopoly- Companies that are considered sporting events or exhibitions, or are not a form of commerce, thus do not need to be limited.  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. HAVE A GREAT DAY ☺