MARKET STRUCTURESTypes of Markets-How do firms sell their products?

PERFECT (PURE) COMPETITION-ALL KINDS OF FUN AND EXCITEMENT

Characteristics of a PC Market Very large #s Standardized product (agriculture) “Price Takers”

market sets price (person selling has no control over price)

Free entry and exit start up costs/technologies are such that anyone can freely enter

the market

THE PURE MONOPOLY-FUN AND EXCITEMENT SINGLE FIRM-INDUSTRY

Single seller No close subs “Price Maker” High barriers to entry-restricted by

technology, patents, cash outlays (amt $ to start company)

BARRIER TO ENTRY

Economies of Scale-cost of entering industry & size of those in the industry discourage others from entering

Patents and licenses-legal barriers keep others from entering

Ownership of resources-DeBeers Diamond company markets 70% of all diamonds in world

Pricing-lowering prices to drive out competition

MONOPOLISTIC COMPETITION-FUN AND EXCITEMENT OF IMPERFECT COMPETITION

Large # sellers Small market share No collusion Independent action Differentiated products-quality, style,

service, brand name Easy entry/exit-limited barriers to entry,

non-price competition-advertising to make price less of factor in decision-making

NON-PRICE COMPETITION

Product differentiation Idea that we view products as being different

Can be based on quality, style, branding Can lead to poor choices (price=quality) Product development-new products are

developed which increases differentiation Advertising-

firms must balance price, product, and costs of developing demand to maximize profit

OLIGOPOLY

Products can be similar or differentiated

Key is market share and price control Profits of firm not only depend on its

own price, but also on price of competitor

High barriers to entry-oil industry operates as world wide cartel