Market Structures Review & Study Guide

What are the characteristics of an oligopoly?

-A few large firms -Identical or differentiated products -High barriers to entry (usually high start-up costs, but not as high as a monopoly) -More control over price (A lot of control, but not complete) -Price leadership (when one large firm changes price first and the other firms follow) -Price War (If collusion breaks down, firms engage in a price war, slashing prices down to competitive levels) -Non-price competitions (Advertising, style, service, and give-aways) -Product differentiation Examples of this market structure are: soft drink companies, airline companies, american automobiles, cell phone services, light bulbs, batteries, and cereal.

How can products be differentiated (without price)?

-By style or type (different features, design, packing, or service) -By location (consumers may choose a product for convenience, even if it costs more) -By quality (some people are willing to pay more for higher quality products)

What are regulations put in place by antitrust laws?

-Government takes ownership of the firm (public ownership) -Government reduces price by setting them near equilibrium (price regulation)

What are some characteristics of Monopolistic Competitions?

-Many sellers -Differentiated products - Low Barriers to Entry (Not as low as PC, but generally low) -Some control over prices (more competition = less control) Examples of this market structure: Shampoo, Fast Food Restaurants, Restaurants, Hair Salons, Retail Clothing Stores, Televisions.

What are the characteristics of perfect competition?

-Numerous Sellers -Standardized products -Free Entry and Exit -Perfect information -Output is determined by demand and the equilibrium price -Neither consumers or produces can change the price Examples of this market structure: Wheat, Tomatoes, Strawberries, and pretty much all produce.

What are the characteristics of a monopoly?

-One seller (the root of the term means one) -No substitutes -High barriers to entry -Control over price Examples of this market structure are: DaBeers (Diamonds), the electric/water company, Amtrack, Google, and National Football League (NFL)

start-up costs

All of the expenses required to start your business

Laws against monopolies that give the government the power to break up monopolies are called

Antitrust laws

Monopolistic Competition and Oligopoly share this characteristic

Both have differentiated products

Monopolistic Competition and Monopoly share this characteristic

Both have some control over price

When firms create a formal agreement to cooperate with other firms on price and production

Cartel

Non-price competition

Competition based on a products appearance, quality, or design, rather than its price.

What are the four barriers of entry?

Control of a resource, technological superiority, government involvement, and economies of scale.

factors that cause a producer's average cost per unit to fall as output rises (buy in bigger amounts = cheaper)

Economies of Scale

What are the four types of monoplies?

Geographic (only one in its general location) Technological (has a technological advantage for a short time, until other firms copy it) Government (Sometimes it is viewed as necessary for government to create one firm, instead of many) Natural (1 company can produce more items than if 2 competed)

Monopolistic Competition

Has all conditions of pure competition except for identical products.

market structure

How and where a firm produces and sells its product

What is a standardized product?

Identical or the same. Although they do not have to be completely identical, consumers think they are. For example, apples, bananas, and any other produce.

How is Monopolistic Competition different from the other three market structures.

It has the power to set prices and products are not identical, unlike Perfect Competition. Its firms do sell unique products, but imperfect substitutes provide competitions, unlike Monopolies. And there is free entry and many firms to prevent collusion, unlike Oligopoly.

Monopolistic Competition and Perfect Competition share this characteristic

Many different firms

Many Sellers, Many Buyers - Similar Products

Monopolistic Competition

Only 1 seller

Monopoly

Government Monopoly

Monopoly created and/or owned by a governing body (federal or state)

The electric company is an example of a

Natural Monopoly

Few sellers and many buyers is a characteristic of

Oligopoly

Many Sellers, Many Buyers - Identical Products

Perfect Competition

Changing your product from your competitors

Product Differentiation

Real or imagined differences between competing products in the same industry.

Product differentiation

Google controls most of the internet searches, which is an example of what type of monopoly?

Technological

Economies of Scale

The more of a product a company creates, the lower the cost per product becomes.

Natural Monopoly

When a firm can produce items at a cheaper cost than two competing companies; Where average costs of production are lowest when all output is produced by a single firm.

Collusion

When producers get together and make agreements on production levels and pricing. -The strongest form is a cartel, a formal agreement to cooperate. -This is not legal in the U.S. due to antitrust laws.

Geographic Monopoly

Where a firm has a monopoly because of its location. Ex. Gas station in the middle of the desert.

Technological Monopoly

Where a firm owns or controls a manufacturing method, process, or other scientific advantage.

An example of an oligopoly is

cell phone service providers

Barriers of Entry

factors that make it difficult and costly for an organization to enter a particular task environment or industry. The four factors are control of a resource, technological superiority, government involvement, and economies of scale.

The only gas station in the middle of the desert is an example of a

geographic monopoly

A good/service that is an example of a monopoly

local power company

An example of perfect competition is

most agricultural markets

Advertising is an example of

non-price competition

A monopoly has complete control over

price and resource

Amtrak trains is

publicly owned by the government

When the government imposes some control over a firm or market

regulation

An market that is an example of a monopolistic competition is

shampoo