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Competition and Market Structures

Perfect Competition, Monopolistic Competition, Monopoly, and Oligopoly

Kara Maurer

on 29 February 2016

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Transcript of Competition and Market Structures

Competition and Market Structures
Perfect Competition
A market structure characterized by a large number of well-informed, independent buyers and sellers who exchange identical products
The Los Angeles Farmer's Market
Farmer’s Markets sell the same products at very identical prices, usually the same.
In 2008, the LA farmer’s markets brought in 4.8 billion dollars and are expected to reach 7 billion at the end of the year.
They advertise their business mainly just on the web, but there are also signs in the city advertising to the community about it.
Necessary conditions for having perfect competition
There must be a large number of buyers and sellers that are selling an identical product.
Each buyer and seller acts independently, this ensures that sellers compete against each other for the consumer’s money.
Buyers and sellers are well-informed about products and prices.
The buyers and sellers must be free to enter into, conduct, or get out of business.
Monopolistic Competition
The market structure that has all the conditions of perfect competition except for identical products.
Nike is a multinational corporation that is involved in the design, development and worldwide marketing and selling of footwear, equipment, and accessories.
Nike is an example of monopolistic competition because they have the aspects that a perfect competition has, except their products are not exactly like their competitors such as Adidas and Under Armour.
Characteristics of Monopolistic Competition
Monopolistic competition is characterized by product differentiation.
Product differentiation is the real or perceived differences between competing products in the same industry.
Monopolistic competition also has profit maximization that will expand its production until its marginal cost is equal to its marginal revenue.
A market structure in which a few very large sellers dominate the industry
The Cell Phone Industry
This industry would qualify as an oligopoly because there are a few very large sellers such as AT&T, Verizon, Sprint, and T-Mobile
The total revenue made by this oligopoly is
$100,000,000,000 Annually
Because Oligopolies are so large, whenever one firm acts, the other firm sin the industry usually follow- or they run the risk of losing customers.
When the interdependent behavior of oligopolies takes the form of a formal agreement to set specific prices or to otherwise behave in a cooperative manner.
However, a collusion between firms is illegal.
A market structure with only one seller of a particular product.
Types of Monopolies
U.S. Postal Services
This would be considered a monopoly because they are the only deliverer of mail in the United States.
Natural Monopoly: A market situation where the costs of production are minimized by having a single firm produce the product
The U.S. Postal Service would be a kind of natural monopoly earning $65 billion dollars in revenue in 2012.
Geographic Monopoly: A monopoly based on the absence of other sellers in a certain geographic area.
An example of a geographic monopoly would be a remote gas station in a certain area without other gas stations. This would make it so that the gas station could rise its prices without loosing demand.
Technological Monopoly: A monopoly that is based on ownership or control of a manufacturing method, process, or other scientific advance.
An example would be if a country or business developed a way to cure cancer, it would be theirs to control. This would give them a patent, or an exclusive right to manufacture, use, or sell any new and useful invention for a specific period.
Government Monopoly: A monopoly owned and operated by the government.
An example of a government monopoly would be the public utilities, or even a public transportation system.
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