PPT 4

• Four (4) Market Structures

  • Perfect Competition
  • Monopoly
  • Monopolistic Competition
  • Oligopoly

  
• Perfect Competition


  A market structure in which a very large number of firms produced a standardized product
• Monopoly


  A market structure in which one (1) firm is the sole seller of a product or service

  
• Monopolistic Competition


  A market structure in which a relatively large number of sellers produce differentiated products
• Oligopoly


  A market structure in which a few numbers of firms produce homogenous or differentiated products
• Imperfect Competition


  The market models of monopoly, monopolistic competition, and oligopoly considered as a group

  
• Pricing Strategy


  • A way of finding a competitive price of a product or a service
  • Combined with the 4P strategy (products, price, place and promotion)
  • Focused on generating and increasing the revenue for an organization, which ultimately becomes profit making for the company
• Prisoner's Dilemma


  A decision-making and game theory paradox illustrating that two rational individuals making decisions in their own self-interest cannot result in an optimal solution
• Prisoner's Dilemma Scenario


  1. Police arrested two suspects of a crime

  2. Both suspects are held in different cells and they cannot communicate with each other

  3. The police officer offers both suspects the opportunity to either remain silent or blame another suspect

  4. If both suspects remain silent, they both will serve only one year in prison

  5. If they both blame each other, they both will serve three years in prison

  6. If one of the suspects blames another and the other remains silent, the suspect who remained silent serves five years in prison, while another suspect would be set free
• Nash Equilibrium


  The decision of blaming another suspect is a rational decision from the perspective of self-interest and it provides Nash equilibrium
• Cooperation produces better results than defection, but it may not be a rational outcome since the decision to cooperate from an individual standpoint is irrational
• Individuals can use different formal approaches to modify the incentives that decision-makers encounter to avoid Prisoner's Dilemma
• The optimum reward for each individual occurs when both parties agree to work together
• Characteristics of Monopoly

  • single seller
  • no close substitutes
  • barriers to entry
  • non-price competition
  • price maker
  • downward sloping demand curve