Market Structures

Amount and Degree of Competition among Firms Competing in the same

Industry

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Economics Unit 4, Lesson 2

Industry

• All the sellers of the same or similar product

• Example: Automobile industry

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Market

• The buyers

• The sellers

• The product

• The price

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Market Structure

• Identifies the amount of competition in an industry

• If we can identify the amount of competition in an industry, we’ll be able to say something about.

• Pricing

• Price competition

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Perfect Competition

• Model does not exist• Infinite number of sellers• Consumers have access to all information.• Sellers have no control over prices.• Identical products• Buyer does not prefer one item over the

other.• Most competitive

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Imperfect Competition

• Three types of imperfect competition

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Monopolistic Competition

• All conditions of perfect competition with product differentiation

• Non-price competition

• Most competitive of imperfect competition

• Most companies operate here

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Oligopoly

• Few, large firms dominate the market (70-80% of the market concentration).

• Not as much competition- Firms have some control over prices.

• Price leadership• Collusion• Price fixing

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Monopoly

• One seller

• No competition

• Legal types– Natural– Technological- Patent or copyright– Governmental

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Monopolies

Natural

• It would be inefficient for more than one seller to operate.

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Monopolies

• Technology – Patent, copyright

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Monopolies

Governmental

• Government owned and controlled

• Example: US Postal Service

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Monopolies

• Franchises or licenses– Cable companies– Radio, TV, cell phones, broadband

• Industrial organizations– NFL, NBA, etc.

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Perfect

Competition

Monopolistic

CompetitionOligopoly Monopoly

Continuum of Market Structures – Shows degrees of competition from most competition to least competition.

Most Least

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Price Discrimination

• Divide consumers into groups.

• Charge different prices to different sections of consumers.

• Examples?

• Movie theatre

• Senior citizen discounts

• Cleaners

• Airline tickets©2012, TESCCC