Competition
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COMPETITION. Goal 8.06: Explain how changes in the level of competition can affect price and output levels. Market. Place where goods and services are bought and sold Where sellers and buyers exchange goods and services Based on SUPPLY and DEMAND. Market Price.

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COMPETITION

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Competition

COMPETITION

Goal 8.06:

Explain how changes in the level of competition can affect price and output levels.


Market

Market

  • Place where goods and services are bought and sold

  • Where sellers and buyers exchange goods and services

  • Based on SUPPLY and DEMAND


Market price

Market Price

  • The price determined by the market

  • Price paid by the buyer and accepted by the seller

  • The entire demand for the product should buy the entire supply of the product


Perfectly competitive market

Perfectly Competitive Market

  • A firm makes as much of a product as it can sell and without losing money

  • NO PROFIT

  • Product provided at the LOWEST possible price in order to maintain demand


Monopoly

Monopoly

  • Characteristics:

    • Single seller of a good or service

    • No close substitute

    • Price maker

    • Blocked entry

  • Examples:

    • Carnegie Steel Company

    • Standard Oil(Jones; Eliot. The Trust Problem in the United States 1922

    • NFL, MLB

    • DeBeers(control of the world diamond markets)

  • Government regulated monopolies

    • Government allows natural monopolies.

      (Public services: gas, electricity, water)


Oligopoly

Oligopoly

  • A few firms dominate the market.

  • The products offered are substitutes,

    if not identical.

  • Result of raising prices can either:

    • increase demand for substitute

      OR

    • encourage people to pay the higher

      price for the brand they prefer

  • In the U.S.A, oligopolistic industries include the tobacco, beer, aircraft, motor vehicle, and music recording industries.


Mergers

MERGERS

  • A combination of two or more companies to form a single business

    WHY?


Horizontal merger

Horizontal Merger

  • A merger between two competitors

  • How could this affect the competitive situation in an industry?


Horizontal mergers

Horizontal Mergers

THINK: What would be the impact these mergers?

  • Verizon & Alltel

  • Exxon Oil & Mobile Oil

  • Pepsi & Coca-Cola

  • McDonald’s & Burger King


Vertical merger

Vertical Merger

  • A supplier buys a reseller, or vice versa.

  • Two companies have a buyer-seller relationship.

  • A business at a different level/stage of the product delivery process buys another firm.

  • Examples:

    • A grocery chain buys a dairy.

    • A jewelry retailer purchases a company that manufactures jewelry.

    • A pharmaceutical company acquires a drugstore chain.

  • Government response?


Vertical mergers

Vertical Mergers

THINK: What would be the impact these mergers?

  • Apple & Intel

  • General Motors & Michelin Tires


Conglomerate

Conglomerate

  • Companies in unrelated businesses join together.

  • The two companies are not competitors.

  • The two companies are not part of the same supply chain.

  • IMAGINE:

    • Microsoft purchasing a

      fast food chain.


Competition

  • Time Warner Inc. (NYSE: TWX) is the world's [3] largest media and entertainment conglomerate headquartered in New York City. Formerly three separate companies: Warner Communications, Inc. and Time Inc. before the Time-Warner merger in 1990 and America Online, Inc. before its purchase of Time Warner in 2001 has created the current Time Warner , with major operations in film, television, publishing, Internet service and telecommunications. Among its subsidiaries are AOL, New Line Cinema, Time Inc., Time Warner Cable, HBO, Turner Broadcasting System, The CW Television Network, UBU Productions, Warner Bros. Entertainment, Cartoon Network, CNN, and DC Comics.


Multinational conglomerate

Multinational Conglomerate


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