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Market Structures

IB Economics
by

Maria Iglesias

on 12 May 2013

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Transcript of Market Structures

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