Market Structures

1
Market Structures

• Perfect CompetitionIdeal, but theoretical
• Large number of buyers and sellers
• Well-informed
• Independent
• Identical products
• Freedom to get into and out of business
• Perfect competition is really a baseline used to
  judge other market structures

2
Market Structures (cont.)

• Monopolistic CompetitionSimilar to perfect
  competition except that the products are not
  identical
• Product differentiationreal or imagined is used
  more than price to get customers
• Oligopolya few large sellers dominate the
  industry
• These companies tend to copy each other so that
  no one will have the advantage
• Example stuffed crust pizza, combination meal,
  ice beer
• Collusion and price-fixing

3
Market Structures (cont.)

• MonopolyA market with only one seller
• Generally illegal unless authorized by the
  government
• Types of Monopoly
• NaturalUtilities tend to be the most common form
• Geographicwhen an area is too small to support
  more than one firm that sells a particular
  product
• TechnologicalWhen a firm has control of a
  particular idea, scientific advancement, or
  manufacturing process (example Kevlar, Viagra,
  Tickle-Me Elmo)
• GovernmentWhen private industry is unable to
  reliably provide a particular service that is
  vital (example Amtrak, Military)
• Baseball

4
Market Failures

• When the five conditions to meet perfect
  competition are not met
• Tends to lead to inefficient use of resources,
  corruption, political influence
• Externalitiesan unintended side effect from a
  business or activity
• Positive
• Negative

5
The Role of the Government

• Antitrust Lawslaws that attempt to prevent
  inadequate competition
• Regulatory agenciesThese agencies are set up to
  protect consumers
• Food and Drug Administration (FDA)
• Disclosure, food labels
• Federal Communications Commission (FCC)
• Control of the airwaves are vital to national
  security
• Securities and Exchange Commission (SEC)
• Federal Aviation Administration (FAA)
• Little margin for error
• Occupational Safety and Health Administration
  (OSHA)