Economics Unit 3.2: Market Structures

Government Monopoly

Government owns the business or only allows one company to be part of the business. In the U.S., the postal service has a natural monopoly on regular mail deliveries.

Anti-trust Laws

Laws that exist to promote fair competition to benefit consumers: - Blocking mergers - Splitting up monopolies

Why monopolies do not benefit the consumers

Monopolies have control over the market, they are able to charge higher prices and produce at a lower output. If the same industry was perfectly competitive, prices would be lower and output would be higher.

Geographic Monopolies

monopolies that exist because there are no other producers or sellers within a certain region. Eg: Hotdog stand

Types of Monopolies

- Natural Monopoly - Government Monopoly - Technological Monopoly - Geographic Monopoly

The 4 market structures:

- Perfect Competition - Monopolistic Competition - Oligopoly - Monopoly Increasing Competition (Bottom to UP) Increasing Market concentration (Top to bottom)

What is a market structure and name 5 factors that determine it.

A firm's decisions on output and price is largely determined by the market structure of its industry. Five Factors: - The number (and size) of firms in the market - Degree to which competitors' products are similar - A firm's control over price - How easy it is for firms can enter or leave the market. - Amount of non-price competition

What is oligopoly and its characteristics?

Market structure where there are only a few large sellers in the market. These firms have a large market share (percent of total sales in the market). EG: Car , Airline Characteristics: - Involve a few large firms. - There may or may not be product differentiation. -Significant control over prices. - Many barriers to entry. It costs a lot of money to start a business in an oligopolistic industry. - Considerable advertising and other forms of non-price competition used. One problem with oligopolies is collusion (i.e., forming a cartel). Because there are only a few firms, they may decide to work together and act as a sort of monopoly.

What is Monopoly and its characteristics? 7 chara

Market structure with only one seller selling a product with no close substitutes. Characteristics: - Very difficult, if not impossible, for other firms to enter the market. - If no close substitutes, the monopolistic firm doesn't need to advertise. - Complete control over total supply. - Firm produces a unique product for which there are no close substitutes. - Price maker; that is, by changing supply it can set whatever price will maximize its profits. - Major barriers to entry prevent other firms from entering the market. - A monopoly need not engage in non-price competition

Technological Monopolies

Monopolies that exist because of inventions or new manufacturing methods . Eg: (patents, new technology)

Government Regulation

Most, if not all monopolies are controlled or owned by the government. The government does not allow any company to become a monopoly. What would happen if a company became a monopoly? - The government would force it to break up into several companies, or it would put strict rules on the price and services that company offered.

Natural Monopoly

Occur when the cost of production are lowest when only one firm provides output. EG: MTR, water and electricity services

What is perfect competition and its characteristics?

The real world market that most resembles this is agriculture In a perfectly competitive market - the prices reflect supply and demand Companies earn just enough profit to stay in business - as soon as companies start making more profit, others will enter (because of no barriers to entry) Characteristics: Many buyers and sellers in the market. Individual firms have no control over total supply. All firms have small market share. All the firms sell a standardized product. There is no product differentiation. Producers must accept the market equilibrium price for their product. Perfectly competitive firms are price takers. It is easy to start and exit the market. There are few barriers to entry. There is little to no non-price competition because consumers have complete information about the product. For example, there is little advertising.

What is monopolistic competition and its characteristics?

There are many businesses that have a monopolistically competitive structure. EG: Hair Salon, restaurants, Characteristics: - Many small firms - There is some, but not a lot of product differentiation. - There is little control over prices. - There are only a few barriers to entering the market. - There is a small amount of non-price competition.