SS - CHAP 8

• An industry is any group of firms that produce or sell identical products.
• market structures have two broad types: perfect competition and imperfect competition.
• perfect competition is invariably known as pure competition
• imperfect competition is classified further into monopolistic competition, oligopoly, and monopoly
• pure competition is a theoretical market. It is the market condition that Adam Smith envisioned in his book Wealth of Nations.
• pure competition exists if: there are many buyers and sellers, there is freedom of enterprise, products are homogenous, factors of production are mobile, buyers and sellers are knowledgable about the development in the market
• products are homogenous if they are indistinguishable
• sellers in a pure competition are price-takers
• profit is maximized when marginal cost is equal to marginal revenue
• profit gets bigger when the marginal cost of production is further reduced, making it smaller than the marginal revneue
• an industry or market made up of only a small number of producers or sellers is an oligopoly.
• oligopoly is also called competition among the few
• the dominant firms in an oligopoly are the industry leaders
• price war occurs when firms reduce prices to attract more buyers and gain a sizable share of the market
• a major disadvantage of oligopoly is price collusion
• price collusion is an agreement among firms to charge a common price for their products
• 2 types of price collusion are tacit and explicit
• tacit price collusion takes place when firms closely monitor each others prices and eventually peg indentical prices without formal agreement
• explicit price collusion happens when producers formally agree to charge a uniform price
• a cartel is an illegal organization of traders/firms
• a market where there is only one producer is a monopoly
• monopoly connotes absence of competition
• monopolist is the boss in a monopoly industry
• cut-throat competition occurs when a producer lowers the price of its product to the level that potential competitors cannot match
• 4 types of monopoly are: natural monopoly, geographical monopoly, technological monopoly, and government monopoly
• natural monopoly develops when it is most practical to have only one firm operating in the market
• geographical monopoly exists if there is only one firm operating in a place
• technological monopoly exists when a government grants an entrepreneur the exclusive right to manufacture and sell a new product
• a market or industry run exclusively by a state-owned firm is a government monopoly
• 3 dangers of monopoly are: exploiters, can create resource immobility, and stagnation
• a market where there are many firms that sell similar but differentiated products is known as monopolistic competition
• monopolistic competition is a combination of the characteristics of monopoly and of pure competition
• commercialism - the idea that advertisements can distort peoples values and priorities in life
• competition is conducive to the continuous improvements of industrial efficiency
• market structure refers to the degree and nature of competition among firms operating in the same industry
• industry leaders are capable of waging a price war
• The national power cooperation (NAPOCOR) monopoliezed the country’s power sector until the electric power industry reform act (Republic act no. 9136) was implemented in 2001
• hoarding is hiding goods in the market