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Market Structures Introduction HL

IB Economics
by

Daniel Broadley

on 7 October 2015

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Transcript of Market Structures Introduction HL

Market
Structures

Perfect
Competition

Monopolistic
Competition

Oligopoly
Monopoly
There is a market anytime the sellers of a good or service meet with buyers to see if there is potential for a transaction to take place
What is a
Market Structure?
A market structure
is the way in which the market is organized
huge number of sellers
products are practically the same, so buyers will make their decisions based on the lowest price
consumer has a lot of power
Sellers are 100% price takers
Cheapest
Price
Easy entry or exit
Pros
competition encourages efficiency
consumers are charged a lower price
suppliers are responsive to consumer wishes (more demand leads to extra supply)
Cons
•Insufficient profits for investment
•lack of product variety•
negative externalities can hurt the environment with pollution
great number of sellers
although many firms potentially sell the same product, they want to differentiate themselves as much as possible from other sellers to convince the buyer the product is unique
rely heavily on ads
But...
Only Burger King
Lets you have it YOUR way
There are many burger restaurants
There are many car insurance companies
But...
Only esurance has
"Fruity Sparkles" are NOT "magically delicious"
Relatively easy entry or exit
Although not as much as perfect competition, they are still price takers because consumers at some point will prioritize price over preference
Pros
promotion of competition
differentiation brings greater consumer choice and variety
incentives for firms to develop product quality for temporary profit
consumers become more knowledgeable of their products
Cons
wasteful- excess capacity because of too many competitors (ads and other factors of production often don’t pay off)
advertising can easily manipulate consumers (especially little kids)
Perfect Competition
Huge number of sellers
Buyers have more freedom to choose the most attractive product to buy
Products are practically the same, so buyers will make their decisions based on the lowest price
Consumer has a lot of power
Sellers practically have no power, the are 100% price takers
Very easy as a firm to enter or exit the competition
review
this makes them
Monopolistic Competition
Great number of sellers
Although many firms potentially sell the same product, they want to differentiate themselves as much as possible from other sellers to convince the buyer the product is unique
Rely heavily on ads
Easy entry and exit for sellers
Although not as much as perfect competition, they are still price takers because consumers at some point will prioritize price over preference
review
state of limited competition
market has a small number of sellers
Oligopoly sellers have more freedom to determine their price than in a monopolistic competition
price
givers
There are barriers to entry
Society benefits from oligopolies because since sellers are so caught up in beating the other sellers, they improve the quality of their products or their service (mostly through research and innovation)
for example...
Airbus
Boeing
VS
Microsoft
Apple
VS
iPhone
Android
VS
VS
VS
Pros
stable prices because if one seller is too high, no consumer will buy from it
prices are still lower than in a monopoly
Cons
It is very hard to enter as a seller because other sellers already have so much access to other resources
Often a firm in an oligopoly will have special deals with suppliers to make it too expensive for other companies to start
Oligopoly
review
Market has a small number of sellers
Oligopoly sellers have more freedom to determine their price than in a monopolistic competition.Barriers to entry
Society benefits from oligopolies because since sellers are so caught up in beating the other sellers, they improve the quality of their products or their service
this makes them
The exclusive control of a good or service in a particular market
there is
only one seller
Consumer has practically no power
Routinely bad service (and no incentives to improve)
High prices
No close substitutes
Barriers to entry because of government intervention
100%
price givers
Pros
saves resources, thereby helping the environment
Cons
bad service with no incentive to change
high prices
barriers to entry
Monopoly
review
Only one seller (full control of market)
No close substitutes
Routinely bad service
High price
Barriers to entry because of government intervention
100% price givers
which means
Fewer firms leads to more power to the seller
Full transcript