MARKET STRUCTURES

STANDARD SSEM14The student will explain the organization and role of business and analyze the four types of market structures in the U.S. economy. a. Compare and contrast three forms of business organization—sole proprietorship, partnership, and corporation. b. Explain the role of profit as an incentive for entrepreneurs. c. Identify the basic characteristics of monopoly, oligopoly, monopolistic competition, and pure competition.

WHEN YOU THINK OF MARKET STRUCTURES THINK……SHOPPING!

SHOPPINGThink of the environment that you shop in:

1. Are many choices?2. What are prices like? If they are

high, why?

3. Can you find similar products? Is there only one product choice?

4. Do the producers try to gain your attention by using unique labeling, advertisements, Etc?

VOCAB TO KNOW… Market power – ability to increase prices

and people still buy it Barriers to entry – how difficult it is to

enter the industry

MARKET STRUCTURE Features of a Market. Such as: Ease of entry into the market

Can a new producer easily enter the market?

Number of buyers/sellers Forms of competition

Ex. advertising

PERFECT COMPETITION This market structure is not real. It is

guided strictly by the laws of supply and demand.

It is a theory that economist created to show what a true competitive market would look

look like. Ranked #1 in competition.

PERFECT COMPETITION1. Commodities (ID products) – only way to compete is with prices2. Easy entry/exit

Low barriers to entry

3. Many buyers and sellers – no monopolies can form4. Consumers are well informed – we know what we are getting5. No price control – no market power, all products alike so you can only compete with price

Example: agricultural products

Name your own example

MONOPOLISTIC COMPETITION This is a REAL market structure. You

shop in it regularly. It is based on differentiating your

products to increase its uniqueness. Uniqueness= higher price that you can

charge!

MONOPOLISTIC COMPETITION1.Similar products

DifferentiateSo similar you can substitute

2.Easy entry/exit3.Many buyers and sellers4.Consumers are well informed

5.Some price control – some market power

Since the products are differentiated, you can charge a little more because of its uniqueness.

Example: cheeseburger fast food, shampoo

CAN YOU NAME TO PRODUCT THE SLOGAN IS REPRESENTING?

1. Just do it2. Push through the pain3. Because I’m worth it4. Like a good neighbor5. When you care enough to send the very

best6. Be all that you can be7. Melts in your mouth, not your hands8. Turning dreams into reality9. I don’t want to grow up….10. That was easy

ANSWERS1. Nike2. Tylenol3. L’Oreal4. State Farm Insurance5. Hallmark6. US army7. MM’s8. Citibank9. Toys R Us10. Staples

NAME THAT LOGO….

LOGOLevisNestleHPDreamworksPanteneMonsterHotwheelsLay’s

WATCH THESEShttp://www.youtube.com/watch?v=WKlHZ_mQm34

http://www.youtube.com/watch?v=XXNrmDSqPPw

How did they try to differentiate? Do you think their strategy will work?

REVIEW Why does Perfect competition have

identical products? Give an example of how a candy bar can

be differentiated. How did Monopolistic competition get its

name? Which market structure would you

rather shop in?

BASKETBALL SHOE You must have:

5 nonprice factors drawn and marked on your shoe

Name your shoe Create a sloganCreate a logo

All of these must been on the front of your shoe. We will vote on these in class! The winner gets candy and a free homework pass!!

MONOPOLIESThe game monopoly and the economic term monopoly have something in common. What do you think it is?

MONOPOLY A monopoly is when one producer sells

a good or service. Since he is the sole provider, he can charge whatever price he/she wants.

MONOPOLY 3 characteristics

Sole producer (high market power)No close substitutesHigh barriers to entry

4 TYPES OF MONOPOLY Natural Monopoly – single producer that

produces most efficiently b/c of the economies of scale.Example – power companies

Geographic Monopoly – a monopoly due to location. Example – Disney World, the movie theater,

Six Flags

4 TYPES OF MONOPOLIES Technological Monopoly – a producer is

the only one with a certain technology or way of producing.

Ex. Patent and copyright. Ex. Polaroid Camera

Government Monopoly – the government is the sole producer of a product.

Example – water company, 1st class mail

REVIEW MONOPOLIES Legal barriers in place to prohibit a

company from forming to compete against the government

When competition is not practical When you dominate an area because

having another competitor isn’t financially profitable

Having legal protection

OLIGOPOLY A market structure where there are only

3-5 producers that produce the good or service

OLIGOPOLY Characteristics

3-5 producersDifferentiated products High barriers to entry and high market

power Interdependent

Example – cereal industryKelloog, Post, and General MillsAmerican Cars – GM, Ford, Chrysler/Dodge

OLIGOPOLY Oligopolies compete legally with

price wars Differentiation of products

OLIGOPOLY Illegal Oligopolies

Cartel – openly announce they are a cartel. They TELL they are a cartel. They openly tell they are an Oligopoly that acts as one! Cartels openly set prices and production Ex. OPEC

Collusion – secretly set prices and production.

Both are illegal in the US because they set prices.

Illegal OligopoliesCartel – openly announce they are a cartel.

They TELL they are a cartel. They openly tell they are an Oligopoly that acts as one! Cartels openly set prices and production Ex. OPEC

Collusion – secretly set prices and production.

Both are illegal in the US because they set prices.

REVIEW OLIGOPOLY Assuming both are allowed in the US

from a consumer point of view, how could a cartel (or collusion) benefit a consumer?

How is an Oligopoly similar to a monopoly?

How is an Oligopoly similar to monopolistic competition?

Could an oligopoly form in a perfectly competitive market? Why?

REVIEW - ANSWER WITH A PARTNER What is an advantage of buying a product

from a monopoly? Disadvantage? Which of the four types of monopoly has

economies of scale? Why? Name one way PC and MC are alike?

Different? Why are cartels/collusions bad for consumers? Explain barriers to entry and market power

with only a three word phrase. (3 word phrase for each)

Why is Perfect Competition the most competitive market structure of all four?

ANTITRUST ACTS If the government didn’t step in to

regulate markets, do you think problems would arise?

YES – that is why we have antitrust acts.

ANTITRUST ACTS Antitrust acts were created to prevent

big businesses from dominating a market and acting like a monopoly or trust.

A trust is a group of companies that act like a monopoly. This is bad because it sets prices too high which is unfair to the consumer.

Deregulation – reduce government regulation in markets. A reduction in government control.

3 ANTITRUST ACTS TO KNOW Interstate Commerce Act – 1887

Regulated trade and did not allow price setting or price discrimination.

Sherman Antitrust Act 1890 – prohibits any agreements, contracts, or conspiracies that would restrain trade – too vague – (1914)Clayton antitrust act strengthened the wording of Sherman. Clayton also legalized strikes and boycotts against companies.

Federal Trade commission act 1914 – created the Federal Trade Commission (FTC) to investigate allegations of unfair methods of competition. It also approves of any mergers.

WRITING ASSIGNMENT Write a paragraph about which of the

three acts you consider to be the most important to our market based economic system.

IncludeThe name of the act and what it does

(define)Two reasons it was createdThree reasons you chose it over the others It must be a minimum of 6 sentencesUse correct grammar and sentence

structure.

TEST PREP Review previous learned material. Such

as: Factors of production, circular flow, production possibilities curve, economic systems, supply and demand, types of business, etc.

Take the practice test available on my website under the practice test questions heading.

Review current material. Maybe explain all four market structures to your parents and see if they can pass my practice test after hearing your lesson!!