topic 7 competition, market structures, & the role of government
TRANSCRIPT
Topic 7
Competition, Market Structures, & the Role of
Government
Market structure:
The type & degree of competition that exists among companies in a certain industry
Pure Competition
•Freedom• Large numbers of buyers and sellers•Buyers and sellers act independently•Well informed•Identical Products
No brand namesSame qualityNo need to advertise
NO influence over price: Supply and
Demand
A LOT of competition between firms
Major Points:
•Keeps prices low
• Very few industries•Buyers are informed & sellers Buyers are informed & sellers sell exactly the same productsell exactly the same product
Examples….
Imperfect Competition
If one of the 4 conditions (of perfect competition) is not met you have…Monopolistic, monopoly, oligopoly
•Limited price influence; Narrow price differences
•A LOT of competition between firms
Major Points:
• Monopolizing a Small part of the market
• Same elements as Pure Comp. EXCEPT type of product
•Product Differentiation leads to NON-PRICE competition (Location, advertising, packaging)
Non-Price Competition
AdvertisingCatchy slogansLocation
Reebok Advertisement- Terry Tate & Super Bowl
http://www.mcdonalds.com/usa/ronald/happy.html
Product DifferentiationProduct Differentiation
•Some influence on Price: decision mainly based on output
•A LOT of competition between firms
Major Points:
•Standardized Oligopoly: identical goods produced
•Differentiated Oligopoly: products are differentiated
•Generally Higher Prices
•Can Lead To: Price leadership; Price wars; Collusion; Cartel
Key Terms
Cartel: group of firms that gets together to make output & price decisions Firms join to increase their market power
Collusion: an agreement among members to set prices & production levelsPrice War: competitors cut their prices very low to win businessPrice fixing: agreement among firms to sell at the same or very similar prices
Price WarsHess vs. USA gas in Ballston Spa (Spring of last year)Monday Hess $2.29 USA $ 2.30
Tuesday Hess $2.29 USA $ 2.29
Wednesday Hess $2.29 USA $ 2.27
No Competition:
No other firms!
Major Points:
• High Prices
• Four Types of Monopolies:
Natural
Geographic
Technological
Government
Extensive Control in the market
Natural Monopolies
A monopoly that occurs naturallyEx. Public utilities, franchise, regulation, economies of scale Telephone Public transportation
Geographic Monopoly
Occurs because of isolation or abundance of a natural resource
Government Monopoly
Involves products that private industry may not adequately provide Ex. Gov’t monopoly on research
marijuana; FAA bills that protect gov’t workers from competition; postal system; schools
Technological Monopoly
• New invention or technique – no competitors yet OR patents or copyrights
Dangers of Monopolies
Can cause artificial shortagesHigh pricesDenies benefit of competitionNot dependent on the marketCan gain political power