Chapter 7 Market Structures

What are the four factors of nonprice competition?

1.physical characteristics: unique color or design. 2. Service: offering enhanced services, such as personal shopping assistant at a department store. 3. Location : having a firm located near other stores, highways, or shopping centers, whatever is convenient for consumers. 4. Status and image : trendiest, fashion, brand.

What is the consequences of a monopolistic competition?

By firms having their own brand, they gain some price control and is more competition.

Monopolistic competition

Had many producers. Try to distinguish their good /services from other forms. Fairly close to substitutes for one another. Limited control over prices because of close substitutes. Start up costs are low, easy to enter.

Monopoly

Has 1 producer/firm controls market, no competition. No substitutes, only product of it's kind, no other producer sells similar good /service. Have market power, sets prices, controls supply of good /service. Not easy to enter, limit/prevent producers from entering.

Imperfect competition

Producers have some power over the prices of their goods/services.

Oligopoly

Small number of firms controls market, 4 top producers supply +60% of total output. Offer same products with minor variations. Have some control over prices, firms in oligopoly are influenced by prices set by other firms in market. Hard to enter, high start up cost.

What are the consequences of an oligopoly?

The leading firms will have market power that will limit competition and raise prices.

How can an oligopoly end up acting like a monopoly?

Through price leadership where a single company which dominates an oligopoly tries to control prices by setting their prices above EP, smaller firms follow and other firms may benefit. The dominant firm can cut back it's prices to take business from or force competitors out of business. Price wars occur when other firms lower their prices which hurts producers and benefits consumers. Another way an oligopoly behaves like a monopoly is through collusion, which controls pricing and production levels. Collusion limits competition. The final way that oligopoly's behave like monopolies is through cartel formation, this sets prices and production levels for A product like a monopoly.

Positive externality

When the production and / or consumption of a good /service benefits those around the production or those near the consumer.

Negative externality

When the production and /or consumption of a good /service affects those around the production or those near the consumer.