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Perfect Competition
MonopolisticCompetition
Oligopoly Monopoly
More Competitive
Less Competitive
4 Market Structures
Home
MonopolisticCompetition
Oligopoly Monopoly
More Competitive
Less Competitive
4 Market Structures
Perfect Competition
Many Producers
Identical products
Easy Entry
No control over Prices
Home
Examples:Very few examplesSome stock and commodities Commodity – exactly the same, no matter who makes itAuctionsFish and fruits vendors selling at the same marketCommercial fishing and wood pulp and paper industry
Perfect Competition
Demand is perfectly elasticSupply and Demand determine PriceSuppliers are Price takers
Perfect Competition
MonopolisticCompetition
Oligopoly Monopoly
More Competitive
Less Competitive
4 Market Structures
Monopolistic Competition
Many Producers
Differentiated products
Few Barriers Entry
Some control over Prices
Home
Examples: Most common form and extremely common in service industry- A lot of non-price competition- physical/style, service, location, status symbolShoes, clothing, gas, restaurants
Called Monopolistic because brands seem to be unique- brand loyalty Company “monopolizes” its brand
Imperfect Competition
Producers have some control over priceProducers have market power
Perfect Competition
MonopolisticCompetition
Oligopoly Monopoly
More Competitive
Less Competitive
4 Market Structures
Oligopoly
Few Producers
Similar products
High Barriers of Entry
Some control over Prices
Home
Examples: Arise due to economies of scale rule of thumb (4 top producers supply 60% of outputs)
Bigger producers take advantage of smaller
Soda (Coke, Pepsi, Cadbury Schweppes) Light bulbs Airlines (Boeing and Airbus) Tennis Balls- Wilson, Penn, Dunlop, SpaldingAutomobiles
Imperfect Competition
Producers have some control over priceProducers have market power
Cooperative Pricing:
Price LeadershipCollusionCartel Formation- illegal in US but not in world - OPEC
Price wars
Preventing lower prices
Perfect Competition
MonopolisticCompetition
Oligopoly Monopoly
More Competitive
Less Competitive
4 Market Structures
Monopoly
One Producer
Unique products
High Barriers of Entry
Substantial control over
Prices
Home
Examples: The Firm is the Industry, Famous – Standard Oil, Microsoft, Major League Baseball
There Anti Trust laws but there are also Legal MonopoliesResource monopolies- controlling one resourcesGovernment created monopolies (copyrights and patents, public franchise, Licenses)- not intended to protect competitors- hair braiding? Preventing lower prices?Natural Monopolies- when a firm can supply a good or service more efficiently and at a lower cost- gas, water, electricity, and cable TV- they can take advantage of economies of scale.
Imperfect Competition
Producers have some control over priceProducers have market powerPrice Setters
Market Structure Number of Firms
Control over Price
Types of Goods
Barriers to Entry
Perfect Competition
Monopolistic Competition
Oligopoly
Monopoly
4 Market Structures
4 market structure activity
1. Divide class into the 4 market structuresa. Perfect competition- +15 students – all get a small piece of candy to sell to teacher- smarties, candy corn etc.b. Monopolistic competition- 4- 6 students (can vary)- each get a similar but slightly different piece of candy- jolly rangers, blow popsc. Oligopoly- 3 students- receive similar candy- tootsie roll, mm bagd. Monopoly- 1 student who receives a unique piece of candy- candy bar
2. Explain to students that they are sellers and that you will buy the candy for a price a 5 cents to 25 cents and that you will buy from one seller in each group. To encourage sale and competition offer 1 bonus point for a sale
3. Instruct students to write price down and hide it from others4. Round 1 – perfct comp and mon comp cannot speak with each other, oligopoly may consult5. Buy candy – perfect comp price takers, monopoly price setters6. Repeat round- allow for discussion amongst perfect comp.7. Three rounds- debrief as yoy continue through and at end8. When finished- fill in chart
Oligopoly Game (real life prisoner’s dilemma)
Lowes
Lower prices Maintain prices
Lower prices 120 120 200 100
Home Depot
maintain prices 100 200 150 150
Payoff represents total profits
What is Home Depot’s dominate strategy? Why?
Does Lowes have a Dominate Strategy? What will they do? Why?
Lower prices is a Nash Equilibrium
Nash Equilibrium- The best response to knowing what the other the other firm is going to do, it doesn’t benefit to defect.
Oligopoly Game
Lowes
Lower prices Maintain prices
Lower prices 100 150 120 130
Home Depot
maintain prices 110 120 150 140
Payoff represents total profits
What is Home Depot’s dominate strategy? Why?
Does Lowes have a Dominate Strategy? What will they do? Why?
Lower prices is a Nash Equilibrium
Nash Equilibrium- The best response to knowing what the other the other firm is going to do, it doesn’t benefit to defect.