market structures. california standard 12.2 students analyze the elements of america's market...
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California StandardCalifornia Standard12.2 Students analyze the elements of
America's market economy in a global setting.
7. Analyze how domestic and international competition in a market economy affects goods and services produced and the quality, quantity, and price of those products.
We categorize industries/markets by how many competitors exist in that market/industry
We categorize industries/markets by how many competitors exist in that market/industry
Pure/PerfectCompetition
PureMonopoly
MonopolisticCompetition Oligopoly
FOUR MARKET STRUCTURES
More Competitors
Less
Competitors
1) Many buyers and sellers act independently
1) Many buyers and sellers act independently
No single buyer or seller in a market has enough power to control demand, supply, or prices.
2) Sellers offer identical products
2) Sellers offer identical products
Buyers choose one product over another primarily on price, not unique characteristics.
3) Sellers can enter or exit the market easily 3) Sellers can enter or exit the market easily
Sellers must be able to enter a profitable market—or leave an unprofitable one-easily. This ensures that a single seller cannot dominate a particular market. Few Barriers to Entry
Barriers to entry: factors that keep competition from entering a market/industry
QuestionQuestion
Relating to Barriers to Entry, what are 3 concerns that you would have if I came up to you to tell you that to become rich, I was going to start a Steel Producing Company?
Example of Perfect CompetitionExample of Perfect CompetitionAgricultural Products1) Thousands of independent farmers compete to sell their products to millions of buyers2) For the most part, products are identical.
3) Farmers who already own land can switch to different products easily
Monopolistic Competition
Monopolistic Competition Key difference from Perfect
Competition: Sellers offer similar, rather than identical, products. Each firm seeks to have a monopoly-like power by selling a unique product - Product Variation
Product VariationProduct VariationProduct variation is more common than having
identical products. Sellers try to differentiate, or point out differences (real or merely seem real), between their products and those of their competitors.
Sellers here, compete on a basis other than price. They compete through advertising and by emphasizing their brand names.
Think of an industry where there is Monopolistic Competition. List the different ways producers differentiate their products in this industry
Think of an industry where there is Monopolistic Competition. List the different ways producers differentiate their products in this industry
3rd Market Structure: Oligopolies3rd Market Structure: OligopoliesA market structure in which a few large sellers control most of the production of a good or service
3 Conditions of an Oligopoly3 Conditions of an Oligopoly1)The critical characteristic of an
Oligopoly is the presence of only a few large sellers
A market is considered an oligopoly when the largest three or four sellers produce most (maybe 70% or more) of the market’s total output
Conditions of an OligopolyConditions of an Oligopoly
3) Difficult Market EntrySignificant Barriers to Entry- Examples?
High Start-Up Costs, A lot of Technical Knowledge Needed, High Consumer Loyalty
List 3 industries that would qualify as oligopolies
List 3 industries that would qualify as oligopolies
Vocabulary: CollusionVocabulary: CollusionWhen sellers secretly agree to set
production levels or prices for their productsIllegal and carries heavy penalties such as fines and even prison sentences
Vocabulary: CartelsVocabulary: CartelsWhere companies openly organize a
system of price setting and market sharing
Illegal in the US but not everywhere in the world
Examples: Diamonds (De Beers) and Oil (OPEC)
Conditions of a MonopolyConditions of a Monopoly1) A Single Seller2) No Close Substitutes3) Difficult Market Entry4) Seller has a great deal of
Price Control
Types of MonopoliesTypes of Monopolies
Natural Monopoly – Sometimes having competition in an industry can be inefficient and not in the public best interest. The government will sometimes grant or allow some companies a Natural Monopoly.
Ex. Utility Companies – Enormously expensive, require construction, essential for the public. Regulated by the government
Types of Monopolies Cont’dTypes of Monopolies Cont’dTechnological Monopolies – Patent: Grants a company or individual the
exclusive right to produce, use, rent and sell an invention for 20 years
Why? To motivate ingenuity and creativity. To give incentive to invent productsCopyright: Protects the work of authors, musicians and artists
Expanding Business: MergersExpanding Business: Mergers
Horizontal MergersMerging two companies
within the same industry
Examples: 1)American Airlines buying US Air 2) AT&T buying Cingular Wireless
Expanding Business: MergersExpanding Business: Mergers
Vertical Merger – Merger of two companies that are at
different stages in the same production process
Example: A merger between Sears and Maytag
Expanding Business: MergersExpanding Business: Mergers
Conglomerate Mergers Merger of two companies that
are in different businesses
Examples: General Electric: Jet Engines, NBC, Insurance, Financing; PepsiCo: Pepsi, Frito-Lay, KFC, Pizza Hut, Taco Bell