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Perfect Competition. Large number of buyers and sellers No product differentiation Low barriers to entry and exit Perfect and equal information No price restrictions & no collusion. Farmer’s as price takers. s=MC. S. d. D. Market. Individual. Consequences of Perfect Competition.

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perfect competition
Perfect Competition
  • Large number of buyers and sellers
  • No product differentiation
  • Low barriers to entry and exit
  • Perfect and equal information
  • No price restrictions & no collusion
slide2
Farmer’s as price takers

s=MC

S

d

D

Market

Individual

consequences of perfect competition
Consequences of Perfect Competition
  • Individuals are price takers
  • profits by costs
  • Cost - price squeeze
  • Don’t perceive horizontal competition
  • Marketing decisions are
    • Time, place, and form
monopoly
Monopoly
  • One seller
  • Price setter
    • Firm supply is the market supply
  • Examples
    • Utilities, cable TV
    • Often regulated
monosony
Monosony
  • One buyer
  • Price setter
    • Firm demand in market demand
  • Depend on market definition
    • Time, form, place
monopoly monosony
Monopoly / Monosony
  • Success depends on
    • Barriers to entry
    • Closeness of substitutes
  • Regional markets ????
oligopoly oligopsony
Oligopoly / Oligopsony
  • Few sellers or buyers
  • Individuals can influence price
    • Co-exist with rivals
    • More stable prices
  • Optimal output is less than profit max output for any one firm
oligopoly oligopsony9
Oligopoly / Oligopsony
  • Often price leader/follower
  • Emphasis on non-price comp.
  • Examples
    • Autos, farm equipment, cereals
oligopoly oligopsony10
Oligopoly / Oligopsony
  • Incentive to try cartels
    • Work together to set supply or price
  • Some government sponsored
    • OPEC
    • Marketing Boards
    • Illegal in US
monopolistic competition
Monopolistic Competition
  • Between olig and perfect comp.
  • Relatively few firms
  • Many close substitutes
  • Try to differentiate product
monopolistic competition12
Monopolistic Competition
  • Very elastic demand
  • Prices nearly alike as consumers will switch
  • Emphasis on non price comp.
    • Pricing strategy
    • Carcass merit, value based marketing
structure and performance
Structure and performance
  • Perfect competition will produce output and aggregate price with the greatest operational efficiency
  • Monopoly has the lowest operational efficiency
structure and performance14
Structure and performance
  • Olig & Mono Comp
    • In between perfect and monopoly
    • Often lead to:
      • Excess capacity
      • Excess non-price competition
competitive conditions
Competitive Conditions
  • Farm markets are near perfect competition but changing
    • Product differentiation
    • Branded products
    • Advertising
    • Promotion
market concentration
Market Concentration
  • Percent of sales by largest firms
  • 4 firm concentration ratio CR4
    • Strong olig CR4 > 50%
    • Weak olig CR4 33-50%
    • Unconcentrated CR4 < 33
  • Competition as concentration
  • All types in Ag
cr4 in ag
CR4 in Ag
  • Cattle slaughter 67
  • Steer and heifer slaughter 80
  • Hog slaughter 56
  • Soybean mills 71
  • Fluid milk 22
  • Poultry processing 34
  • Breakfast cereal 85
leaders
Leaders
  • Beef
    • IBP/Tyson, Excel/Cargill, Swift/Conagra, Farmland, Smithfield
  • Pork
    • Smithfield, IBP/Tyson, Excel/Cargill, Hormel
leaders19
Leaders
  • Grain Handling
    • ADM, Cargill, Bunge, Cenex Harvest States, Peavey/Conagra
  • Ag Chemicals
    • Bayer CropScience (Aventis), Syngenta, Monsanto, BASF, Dow Agrosciences
  • Seeds
    • DuPont (Pioneer), Monsanto, Syngenta, Groupe Limagrain, Grupo Pulsar
concentration and market definition
Concentration and Market Definition
  • Iowa steer and heifer slaughter
  • US steer and heifer slaughter
  • US cattle slaughter
  • All livestock slaughter
  • All protein production
barriers to entry
Barriers to Entry
  • Key resources
    • Inputs, $$$, skills
    • Patent
  • Economies of scale
  • Location
  • Information
workable competition
Workable Competition
  • Enough buyers and sellers to provide alternatives
  • No one can coerce a rival
  • Firms respond to profit and loss
workable competition23
Workable Competition
  • No collusion
  • Enough entry and exit for rivals to challenge
  • Free access of buyers and sellers
role of government
Role of Government
  • Prevent or regulate monopoly
  • Anti-trust laws to prevent some types of behavior
  • Coop laws to strengthen smaller firms by banning together
government regulations
Government Regulations
  • Grain Inspection, Packers and Stockyards Administration (GIPSA)
    • Division of USDA
    • Regulation of markets and trade
    • http://www.usda.gov/gipsa/aboutus/bkgd2.htm
  • Federal Trade Commission
    • Anti-Trust investigations
  • Attorney General (State)
concentration summary
Concentration summary
  • More narrowly defined markets are more concentrated
  • Integration is not concentration
  • Economies of scale
    • Plant or firm level economies
    • May drive concentration
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