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Economics 101. By: Serenity Hughes. Imperfect Competition. The markets for many important products are dominated by a small number of very large firms. Imperfectly Competitive markets with one or only a few suppliers. Objective- maximize their economic profits. Downward sloping curve - PowerPoint PPT Presentation
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By: Serenity HughesECONOMICS 101
The markets for many important products are dominated by a small number of very large firms.
IMPERFECT COMPETITION
Objective- maximize their economic profits.
Downward sloping curve
MARKET POWER- firms that face a downward sloping demand curve.
They have the ability to choose market prices instead of taking prices as given.
IMPERFECTLY COMPETITIVEMARKETS WITH ONE OR ONLY A FEW SUPPLIERS
An extreme situation of a single supplier.
MONOPOLY
1. The Ownership of a Key Resource2. Government- Created Monopolies3. Natural Monopolies
BARRIERS TO ENTRY- PREVENT COMPETITORS FROM ENTERING THE
MARKET
Sherman Anti-Trust Act of 1890- an act passed to reduce the impact of monopoly. Increase Market Competition
WHAT CAN THEY DO????- Large mergers and acquisitions must be reviewed
by government regulators- Break up companies
DEALING WITH MONOPOLIES
By changing different prices- the marginal revenue curve would be identical to the
market demand curve, and it would choose to supply a quantity equivalent to the competitive market outcome.
Price discrimination (PD) further increases monopoly to capture a greater fractionof the benefits produced by each transaction.
PD increases social welfare by moving the market closer to the socially efficient quantity.
PRICE DISCRIMINATION- CHARGING DIFFERENT CUSTOMERS WITH DIFFERENT
PRICES .
Market with only a few sellers Downward sloping demand curve
Cartel- an agreement to cooperate and behave like a monopolist so total industry profits canbe maximized= illegal in US.
OLIGOPOLY
MC- combine aspects of the perfectly competitive and monopoly models.
Downward sloping demand curve due to the product of each firm being differentiated.
IMPERFECT COMPETITION- MONOPOLISTIC COMPETITION
Competitive markets will fail to produce socially desirable outcomes. 1. Externality- arises when the actions of one person affect
the well being of someone else, but neither party pays nor is paid for these effects.
BENEFICIAL- POSITIVE EXTERNALITY CAUSES HARM- NEGATIVE EXTERNALITY
MARKET FAILURE
There will be too little of an activity that generates positive externalities and too much of an activity that generates negative externalities.
EXTERNALITIES CONT.