Market Structure

1. Market Structure By Group #1: Silvia Luque Kyoungoung Min Jasung Park Charlie Li Qian Samantha Rodriguez

2. Five Types of Market Structure Perfect Competition Monopolistic Competition Oligopoly Oligopsony Monopoly

3. Perfect Competition Economic model that describes a hypothetical market form in which no producer or consumer has the market power to influence prices.

4. Description of Perfect Competition Efficient outcome Foundation of the theory of supply and demand Market equilibrium Resources and allocated and used efficiently Collective social welfare is maximazed

5. Requirements

6. Why does a Perfect Competition firms demand curve is also its marginal revenue curve? For a perfectly competitive firm with no market control, the marginal revenue curve is a horizontal line. Because a perfectly competitive firm is a price taker and faces a horizontal demand curve, its marginal revenue curve is also horizontal and coincides with its average revenue (and demand) curve.

7. Perfect Competition Graph

8. Example of Perfect Competition eBay auctions can be often be seen as perfectly competitive. There are very low barriers to entry (anyone can sell a product, provided they have some knowledge of computers and the Internet), many sellers of common products and many potential buyers. In the eBay market competitive advertising does not occur, because the products are homogeneous and this would be redundant. However, generic advertising (advertising which benefits the industry as a whole and does not mention any brand names) may occur.

9. Free Software: Example of Perfect Competition Free software works along lines that approximate perfect competition. Anyone is free to enter and leave the market at no cost. All code is freely accessible and modifiable, and individuals are free to behave independently.

11. Monopolistic Competition Characteristics: A large number of firms- it is like perfect competition Entry easy � few barriers to entry and exit, so it is unlike monopoly Differentiated products� they are therefore closed, but not perfect, substitutes so, they have market power(it means each firm has a unique product)

12. Monopolistic Competition The strategies for Differentiated products Fast-food market Mac Donald's, Taco-Bell, and Wendy�s Brand Name Starbucks

13. Monopolistic Competition Implications for the diagram: Above-Normal Profit

14. Monopolistic Competition

15. Monopolistic Competition

16. Monopolistic Competition This is the long run equilibrium position of a firm in monopolistic competition. In a monopolistically competitive industry, entering firms produce a close substitute, not an identical or standardized product.

17. Perfect and Monopolistic Competition Compared

18. Monopolistic Competition In each case there are many firms in the industry Each can try to differentiate its product in some way Entry and exit to the industry is relatively free Consumers and producers do not have perfect knowledge of the market � the market may indeed be relatively localised.

19. Monopolistic Competition Restaurants Plumbers/electricians/local builders Private schools Plant hire firms Insurance brokers Health clubs Hairdressers Estate agents Damp proofing control firms

20. An OLIGOPOLY is a market form in which a market or industry is dominated by a small number of sellers(Oligopolists) OLIGOPOLY

21. Example of Oligopoly around our life in U.S.A. OLIGOPOLY

22. Fast foods McDonalds, Burger King, KFC

23. Bookstores

24. Oils

25. Electrical goods

26. Mobile phone networks

27. Characteristics of Oligopoly Product Branding Entry barriers Interdependent decision-making Non-price competition OLIGOPOLY

28. Oligopsony A market dominated by many sellers and a few buyers

29. Definition of Oligopsony An oligopsony is a market form in which the number of buyers is small while the number of sellers in theory could be large. This typically happens in market for inputs where a small number of firms are competing to obtain factors of production. It contrasts with an oligopoly, where there are many buyers but just a few sellers. An oligopsony is a form of imperfect competition.

30. Cocoa: Example of Oligopsony

31. Three Buyers of Cocoa Bean Three firms buy the vast majority of world cocoa bean production, mostly from small farmers in third-world countries.

32. Tobacco in US: Example of Oligopsony

33. Three Major Buyers of Tobacco in US Three companies (Altria, Brown & Williamson, and Lorillard Tobacco Company) buy almost 90% of all tobacco grown in the US.

34. Characteristics of Oligopsony The buyers have a major advantage over the sellers. They can play off one supplier against another, thus lowering their costs. They can also dictate exact specifications to suppliers, for delivery schedules, quality, and (in the case of agricultural products) crop varieties. They also pass off much of the risks of overproduction, natural losses, and variations in cyclical demand to the suppliers.

35. What is a Monopoly? A monopoly is a market structure in which there is a single supplier of a product . �Monopoly" is a term from economics that refers to a situation where only a single company is providing an irreplaceable good or service.

36. How do Monopolies Occur? This was a side effect of being the inventor of a product for which there is high demand but no preexisting supply. Other monopolies occur when consolidation across industries results in a single supplier. This was the case with the company Standard Oil, which had to be broken up by the government in 1911.

37. Description of a Monopoly One firm that produces a good that is desired by customers The firm in question is the only place where the good or service can be found, they have the ability to charge whatever they want, to the damage of market competition that is the foundation of a healthy economy.

38. Advantages of a Monopoly Research and Development. Supernormal Profit can be used to fund high cost capital investment spending. Successful research can be used for improved products and lower costs in the long term. Economies of scale. Increased output will lead to a decrease in average costs of production. These can be passed on to consumers in the form of lower prices.

39. Disadvantages of a Monopoly  Price and Lower Output than under Perfect Competition. This leads to a decline in consumer surplus and a deadweight welfare loss A monopoly is productively inefficient because it is not the lowest point on the Average Cost curve

40. Disadvantages of a Monopoly(Continued) A Monopolist makes Supernormal Profit leading to an unequal distribution of income. A monopoly may use its market power and pay lower prices to its suppliers.

41. Graphing a Monopoly

42. Example of a Monopoly A recent example of a monopoly would be that of the pharmaceutical giant Pfizer over the drug Viagra�, which at the time of its release had no substitutes or competitors. Microsoft; settled anti-trust litigation in the U.S. in 2001; fined by the European Commission in 2004, which was upheld for the most part by the Court of First Instance of the European Communities in 2007. The fine was 1.35 Billion USD in 2008 for incompliance with the 2004 rule

44. Monopolistic Competition Characteristics: A large number of firms- it is like perfect competition Entry easy � few barriers to entry and exit, so it is unlike monopoly Differentiated products� they are therefore closed, but not perfect, substitutes so, they have market power(it means each firm has a unique product)

45. Monopolistic Competition The strategies for Differentiated products Fast-food market Mac Donald's, Taco-Bell, and Wendy�s Brand Name Starbucks

46. Monopolistic Competition Implications for the diagram: Above-Normal Profit

47. Monopolistic Competition

48. Monopolistic Competition

49. Monopolistic Competition This is the long run equilibrium position of a firm in monopolistic competition. In a monopolistically competitive industry, entering firms produce a close substitute, not an identical or standardized product.

50. Perfect and Monopolistic Competition Compared

51. Monopolistic Competition In each case there are many firms in the industry Each can try to differentiate its product in some way Entry and exit to the industry is relatively free Consumers and producers do not have perfect knowledge of the market � the market may indeed be relatively localised.

52. Monopolistic Competition Restaurants Plumbers/electricians/local builders Private schools Plant hire firms Insurance brokers Health clubs Hairdressers Estate agents Damp proofing control firms

53. References http://en.wikipedia.org/wiki/Market_structure http://en.wikipedia.org/wiki/Oligopsony http://www.callebaut.com/nlnl/ http://www.autoracing1.com/MarkC/2001/0904Sponsors.htm http://www.rcpedreira.com.ar/Paginas/companias.htm http://en.wikipedia.org/wiki/oligopoly http://ww.bized.co.uk/educator/16-19/economics/firms/activity/structure.htm http://tutor2u.net/economics/revision-notes/a2-micro-oligopoly-overview.html http://www.wisegeek.com/what-is-a-monopoly.htm