Monopolies and Collusion

The level of competition in an industry is affected by :

the ease with which new producers can enter the industry, and by the availability, price and quantity of substitute goods and services

natural monopoly

when 1 producer can supply total output in a market at a cost that is lower than when 2 or more producers divide product, competition may be impossible.

collusion

when competing firms make a secret agreement to try to control a market. Collusion (practiced by cartels) is illegal in the United States. It reduces the level of competition in a market. Is more difficult in markets with large numbers of buyers and sellers.

oligopoly

when there are few sellers, competition is limited, and producers are able to gain more control of the market

An industry is:

A distinct group of productive or profit-making enterprises sharing similar products or services Ex. the automobile industry

Markets with Perfect Competition

Have many buyers with perfect information and sellers all selling identical products. Sellers here have no market power - no control over the market price. For example, a grower of plain white rice can only sell at the market price - no one will pay more because they can get plain white rice from any supplier at that price.

monopoly

has one supplier of a product. The seller here has market power and can control both price and quantity.

Monopolies and collusion among sellers

eliminate competitionIn industries with less competition, prices are likely to be higher