MARKET STRUCTURES

• • many buyers and sellers
  • all consumers have "perfect knowledge"
  • perfectly homogenous
  • low barriers to entry

  PERFECT COMPETITION
• it is purely theoretical concept by adam smith

  perfect competition
• • many buyers and sellers
  • low barriers to entry
  • non-price competition
  • similar products but differentiated

  monopolistic competition
• comes from the word "oligoi" and "pollein"

  oligopoly
• what does oligopoly means?

  few sellers
• • two or more firms
  • high barriers to entry
  • homogenous or similar products
  • engages in non-price competition supported by heavy advertising

  oligopoly
• what is non-price competition

  it differs on the SERVICES provided
• Nature of Oligopoly Products

  • similar; homogenous products

  pure oligopoly
• Nature of Oligopoly Products

  • sell similar but non-identical products

  Differential Oligopoly
• Who are the Price takers?

  Perfect Competition

  Monopolistic Competition
• Who are the Price Makers?

  Oligopoly and Monopoly
• It is a combination of elastic and inelastic demand curve

  expresses price rigidity in the oligopoly market

  
  

  Kinked Demand Curve
• successive price cuts by rivals as they attempt to maintain their market shares; they compete with lower prices

  Price War
• the study of how people behave in a strategic situations

  • wherein, everyone is in a game of chess and they all have poker faces

  game theory
• a paradox in a decision analysis in which two individuals acting in their own self-interests then do not result in an optimal outcome (non-collusive)

  Prisoner's Dilemma
• How do you avoid being in a prisoner's dilemma?

  COLLUDE
• o   Different firms in the market have some informal or formal agreement regarding pricing, output, division of market & profit sharing

  Collusive Oligopolies or Cartels
• firms producing the same products; extreme form of of perfect collusion

  Perfect cartels
• firms share in the market have some informal or formal agreement regarding pricing, output, division of market & profit sharing

  Market-sharing cartels
• charging an agreed uniform price

  quota agreement cartels
• combining 2 or more competing firms may substantially increase, their market share

  Mergers
• – leading firms in the sector determines the price of goods and services

  Price Leadership
• this means "one seller"

  monopoly
• Ø  Sector or industry dominated by one corporation

  Ø  Extreme result of free-market capitalism wherein absent any restrictions or restraints

  Ø  Absence of competition

  • High costs for consumers
  • Inferior products & services (low quality)
  • Corrupt behavior

  Ø  Blocked entry/ High barriers to entry (Government)

  Ø  Secured monopolist status

  Monopoly
• o   It exists when a single firm is the sole producer of a product or service & there are no close substitutes

  pure monopoly
• o   Most efficient number of firms in the industry is ONE.

  regulated or national monopoly
• what kind of monopoly is an utilities provider?

  national monopoly
• o   Has almost absolute monopoly or has significantly high power over an industry

  near monopoly
• o   When the market is so limited that it doesn’t make sense for anyone besides a single seller to enter the market to the point any additional people or companies wouldn’t make a profit

  geographic monopoly
• what does monopoly want to achieve?

  monopolies seek to achieve MAXIMUM PROFIT not maximum price per unit
• a situation where there is one buyer and many sellers (E.G. Government)

  Monopsony
• a state wherein resources are apportioned among industries and firms to yield the mix of products and services that is most wanted by society.

  Allocative efficiency
• when an economy has its resources and goods allocated to the maximum efficiency level, and no change can be made without making someone worse off

  Pareto Optimality