ch. 7 – market structures there are 4 market structures (see next slide) they have to do with how...
TRANSCRIPT
Ch. 7 – Market Structures
• There are 4 Market Structures (see next slide)• They have to do with how much competition is in
a given industry.– Ex.: lots of competition in the textile industry. Little
competition in the oil industry.
• General rule of thumb = more competition is better b/c the consumer gets more choice, better quality, better prices when lots of firms are competing for your dollar.
Monopolies
• Natural
• Natural – market where avg. costs are lowest when output is produced by a single firm
Monopolies
• Geographical
• Has control because of its location or small size of the market
Monopolies
• Technological
• A firm owns or controls a scientific process or a manufacturing method or other scientific advance
Monopolies
• Government
• The gov. owns/operates the means of production and delivery of a good or service.
Market Failures• What problems can arise from an
unfettered free-market economy?
The absence of these conditions could lead to ‘market failure’:
•Adequate competition
•Adequate information
•Resource mobility
•Lack of Public Goods
•Externalities
• Inadequate competition– Few firms dominate a given industry
• Example = The big 3 auto makers– They use their oligopoly power to restrict
competition and restrict production » Leads to waste and abuse» Allows them to wield political power
• Inadequate information– Information is power, especially in the
marketplace.• If a company reports false information, for
example, investors may buy their stock without knowing that it’s risky.
• Resource Immobility– If a large auto plant closes, do people move
away to find new jobs? Many of the may stay there…unemployed.
– While this may not lead to a catastrophe, the ‘marketplace’ is not functioning efficiently.
Positive or Negative Externalities
• When a third party is affected by a business transaction that he/she had nothing to do with– Esperanza Burger becomes Club EHSClub EHS!
• Who wins? – Positive Externality?
» 18 + crowd live close!» Other businesses surrounding it.
• Who loses?– Negative Externality?
» Noise pollution (local residents)» Increased traffic/parking problems/drunk
idiots
Public Goods
• Certain services and/or goods will not be provided b/c few are willing to pay for them– Roads, national defense, police, and fire
protection• So, gov. must provide these
So who is going to regulate the marketplace to prevent ‘market
failures’?
Thanks, Uncle Sam!
How?
• Promote Competition (Antitrust Legislation)– Sherman Antitrust Act
• Regulate natural monopolies– Set price ceilings on utilities, cable, and telephone
companies
• Internalize Externalities– Tax companies who cause pollution.
• Force public disclosure– SEC forces companies to report accurate info.