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Agribusiness Library

Learn about the similarities and differences between homogeneous and differentiated products in different market structures. Explore the concepts of perfect competition, monopolistic competition, oligopoly, and monopoly.

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Agribusiness Library

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  1. Agribusiness Library LESSON L060093: TYPES OF MARKETS

  2. Objectives 1. Compare and contrast homogeneous products and differentiated products. 2. Distinguish between the four basic market structures. 3. Define merger, and analyze the types of mergers. 4. Explain the history of major antitrust laws, and describe punishable monopolistic practices.

  3. acquisition antitrust laws conglomeration differentiated products grade homogeneous products horizontal merger market-extension merger market share market structure merger monopolistic competition monopoly oligopoly perfect competition price discrimination product-extension merger target market tying vertical merger Key Terms

  4. How are homogeneous and differentiated products similar? How are they different? Markets are comprised of homogeneous and differentiated products. A. Homogeneous products (commodities) are those products that are the same no matter who produces them. 1. They are marketed at the same price by grade—an established level of quality.

  5. How are homogeneous and differentiated products similar? How are they different? 2. The price homogeneous products sell for changes on a daily basis with the fluctuation of global supply and demand. 3. Examples of homogeneous products include cotton, soybeans, corn, ethanol, aluminum, crude oil, and copper. 4. As product standardization occurs in a product’s life cycle, products that once sold for a premium now sell at the same price in all marketplaces.

  6. How are homogeneous and differentiated products similar? How are they different? B. Differentiated products are those products that only differ slightly from their competition and sell at different prices in different markets. Often the only difference between products —even though they can have significant differences in price—is their packaging or advertising.

  7. How are homogeneous and differentiated products similar? How are they different? 1. Product differentiation is created to make a product more attractive to its target market. In other words, differentiation creates competitive advantage where a sense of value is created for the customer. 2. A target market is a clearly defined group of consumers that a company aims its products toward.

  8. How are homogeneous and differentiated products similar? How are they different? 3. Differentiation can be made in terms of: a. Quality b. Features c. Design d. Sales promotions e. Advertising f. Availability g. Customer knowledge

  9. How are homogeneous and differentiated products similar? How are they different? 4. Examples of differentiated products include electronics and food products. 5. Often a product will be produced at one facility and then sold under different brand names by several companies— all at different prices.

  10. What are the four basic market structures? There are four basic market structures. Market structure is the amount of competition within a market. To distinguish between the market structures, consider the following elements: • number of producers and consumers • amount of business each company does within the market • types of products being traded • amount of information made available between companies and consumers.

  11. What are the four basic market structures? The market structures—from least to most competitive— are perfect competition, monopolistic competition, oligopoly, and monopoly.

  12. What are the four basic market structures? A. Perfect competition describes a market where there are many small firms producing homogeneous goods. There are many buyers and many sellers within the market. 1. It is easy for a business to enter into pure competition. 2. It is relatively easy to acquire information as a competitive business or as a consumer. 3. Businesses are typically able to sell their products (e.g., wheat, silver, and hogs) in a way to generate profits.

  13. What are the four basic market structures? B. Monopolistic competition occurs in a market where there are a large number of businesses controlling a small portion of the market share—portion or percentage of a total market that a business serves. 1. Differentiated products are sold in a monopolistic competition. 2. It is easy for a business to enter into monopolistic competition and to have some control over the price of its product. 3. Examples include restaurants, clothing, and grocery products.

  14. What are the four basic market structures? C. An oligopoly is a market dominated by a small number of businesses. Since the playing field is so small, each business in the market is keenly aware of the actions of its competitors. 1. It is difficult to enter into an oligopic market. 2. When conducting strategic planning, those businesses in the oligopoly must take the actions and responses of other businesses in the market into consideration. Because of this, the risk of fraud is high. 3. Examples include telecommunications, automobiles, and aeronautics.

  15. What are the four basic market structures? D. A monopoly occurs if there is only one provider for a product. Because there is no competition (or very little), the company has significant control over price and availability. 1. Monopolies can occur naturally when mergers take place. 2. A monopoly is illegal when it does not allow any competition to enter the marketplace.

  16. What are the four basic market structures? D. A monopoly (cont’d) 3. Examples of businesses or industries that have been in monopolies include: a. The salt commission (China—758) b. British East India Company (1600) c. Standard Oil (1911) d. Major League Baseball (1922) e. Microsoft (2001)

  17. What is a merger? What are the types of mergers? A merger is the combining of two companies into one company. When companies merge, they may combine to create a new company name (dropping both of the old names), or they may continue to operate under their original names and be owned by a common company.

  18. What is a merger? What are the types of mergers? A similar but slightly different action in the business world is an acquisition. An acquisition happens when a company completely takes another company over. The company being taken over takes on the purchasing company’s name. There are five types of mergers.

  19. What is a merger? What are the types of mergers? A. A horizontal merger is the consolidation of two competing companies. Before merging, the companies sell the same product to customers in the same market. An example of a horizontal merger is two T-shirt production companies in the same city merging.

  20. What is a merger? What are the types of mergers? B. A vertical merger is a customer and a company joining forces or a supplier and a company consolidating. An example of a vertical merger is a cotton processing company and a T-shirt production company teaming up.

  21. What is a merger? What are the types of mergers? C. A market-extension merger is two companies that sell the same products in different markets joining forces. When this type of merger occurs, the new company is able to cover a larger market area. An example of a market-extension merger is two T-shirt production companies in two different cities merging.

  22. What is a merger? What are the types of mergers? D. A product-extension merger is two companies that sell different yet related products in the same market joining forces. An example of a product-extension merger is a T-shirt production company merging with a T-shirt sales shop in the same city.

  23. What is a merger? What are the types of mergers? E. A conglomeration forms if two companies with no common interests team up. The two companies may have shared marketing, production, or distribution channels prior to the merge. An example of a conglomeration merger is a T-shirt production company merging with a granola bar production company.

  24. What is the history of antitrust laws?What monopolistic practices are punishable by law? The United States has laws in place at the state and federal levels to prevent monopolies. These preventative laws, which apply to individuals and businesses, are called antitrust laws. They are in place so markets stay competitive.

  25. What is the history of antitrust laws?What monopolistic practices are punishable by law? A. The first documented antitrust law in the United States went into effect in 1890. Before that, common law ruled, and monopolies were not illegal. It was called the Sherman Antitrust Act of 1890 and made it illegal to try to restrain trade or to form a monopoly.

  26. What is the history of antitrust laws?What monopolistic practices are punishable by law? 1. Section 1 of the Sherman Act states that the courts are to interpret which contracts unfairly restrict trade. 2. Section 2 makes it illegal for a company or an individual “to monopolize or to attempt to monopolize.”

  27. What is the history of antitrust laws?What monopolistic practices are punishable by law? B. In 1914, the Clayton Act was passed, bringing more definition to antitrust laws, especially around mergers and acquisitions. It outlaws things such as price discrimination, tying, and mergers that “substantially… lesson competition or…tend to create a monopoly.”

  28. What is the history of antitrust laws?What monopolistic practices are punishable by law? 1. Price discrimination is the practice of charging different customers different prices for the same product or service. 2. Tying is the practice of forcing someone who wants to buy a product to purchase another product. 3. The Clayton Act also authorizes private antitrust suits and triple damages as well as exempting labor organizations from the antitrust laws.

  29. What is the history of antitrust laws?What monopolistic practices are punishable by law? C. Also in 1914, Congress established the Federal Trade Commission (FTC). The FTC is able to interpret and enforce the Federal Trade Commission Act’s antitrust laws in a case-by-case basis. D. The National Recovery Act (NRA) was a short-lived program from 1933 to 1935. It strengthened trade associations and raised prices, profits, and wages at the same time.

  30. What is the history of antitrust laws?What monopolistic practices are punishable by law? E. The Robinson-Patman Act of 1936 sought to protect small retailers against more efficient chain stores by making it illegal to discount prices. F. Some systems are exempt or partially exempt from antitrust laws in the United States. 1. Labor unions 2. Professional baseball 3. Agricultural cooperatives 4. The National Football League 5. Newspapers

  31. Review 1. Define a homogeneous product and name one example. 2. Define a differentiated product and name one example. 3. What are the four basic market structures? 4. What are the different types of mergers? 5. Who established the Federal Trade Commission? When was it established and why was it established?

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