Pure Competition Market Structure Continuum Four Market Structures

Pure CompetitionPure Competition

Market Structure ContinuumMarket Structure Continuum

Four Market Structures

Pure MonopolyPure Monopoly


PurePureCompetitionCompetition


Monopolistic CompetitionMonopolistic Competition



PurePureMonopolyMonopoly

MonopolisticMonopolisticCompetitionCompetition


OligopolyOligopoly






OligopolyOligopoly









MonopolisticMonopolisticCompetitionCompetition OligopolyOligopoly

Characteristics of Pure Competition

• very large numbers

• standardized product

• price-takers

• easy entry & exit

Pure Monopoly

Characteristics:

• Single seller

• No close substitutes

• Price-maker

• Blocked entry

Pure Monopoly

• Examples– public utilities

Pure Monopoly

• Examples– public utilities – professional sports teams (Maple Leafs)

Barriers to Entry

• Economies of Scale (Microsoft, aircraft)

• Legal Barriers to Entry: Patents (drugs)& Licenses (CRTC)

• Ownership or Control of Essential Resources

• Pricing & Other Strategic Barriers to Entry

Monopolistic Competition& Oligopoly

Monopolistic CompetitionMonopolistic Competition






Characteristics of Monopolistic Competition

• Relatively Large Number of Sellers– Small Market Shares– No Collusion– Independent Actions (little interdependence)


• Differentiated Products– product attributes (physical, qualitative)– service– location (small convenience stores)– brand names & packaging (Bayer vs. Anacin)– some control over price


• Relatively Large Number of Sellers

• Differentiated Products

• Easy Entry & Exit

• Advertising

OligopolyOligopoly






OligopolyOligopoly

The Characteristics of Oligopoly

• A Few Large Producers• Homogeneous or Differentiated Products • Control Over Price, but Mutual

Interdependence• Entry Barriers

– economies of scale– high capital costs– ownership of raw materials

• Mergers

ECONOMICS IN ACTION And, according to affidavits submitted to a Canadian court, top

executives at Hershey, Mars, and Nestle met secretly in coffee shops, in restaurants, and at conventions to set prices.

The Prisoners’ Dilemma When the decisions of two or more firms significantly affect each others’

profits, they are in a situation of interdependence. The study of behavior in situations of interdependence is known as game

theory. The reward received by a player in a game—such as the profit earned by

an oligopolist—is that player’s payoff.• A payoff matrix shows how the payoff to each of the participants in a

two-player game depends on the actions of both. Such a matrix helps us analyze interdependence.

18

The Prisoners’ Dilemma

Don’t confess

Don’t confess

Confess

Confess

Louise

Louise gets 2-year sentence.


Thelma gets 20-year sentence.






Thelm

a

19

Four Market Models

LO1

Characteristics of the Four Basic Market Models

CharacteristicPure

CompetitionMonopolistic Competition Oligopoly Monopoly

Number of firms A very large number

Many Few One

Type of product Standardized Differentiated Standardized or differentiated

Unique; no close subs.

Control over price

None Some, but within rather narrow limits

Limited by mutual inter-dependence; considerable with collusion

Considerable

Conditions of entry

Very easy, no obstacles

Relatively easy Significant obstacles

Blocked

Nonprice Competition

None Considerable emphasis on advertising, brand names, trademarks

Typically a great deal, particularly with product differentiation

Mostly public relation advertising

Examples Agriculture Retail trade, dresses, shoes

Steel, auto, farm implements

Local utilities

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Documents

Pure Competition Market Structure Continuum Four Market Structures