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Econ Project

4 Types of Businesses

Matthew Wang

on 31 October 2012

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Transcript of Econ Project

zz Market Structures? There are four main types of market structures: 1. Perfectly Competitive Market Structures
2. Monopolistically Competitive Market Structues
3. Oligopolistic Market Structures
4. Monopolistic Market Structures You Rolled a........... You Rolled a... Characteristics of Oligopolies -Most important characteristic is an industry that is dominated by a few very large firms in comparison to the size of the market.
-If these large firms decide to collude, they can reduce production and drive up prices to increase profits
-This oligopoly now wants to keep the prices rigid in order to sell their goods at an elevated price.
-The oligopoly maintains it's dominance over the market by setting high barriers to entry such as: Exclusive Resource Ownership, Patents and Copyrights, High Start-Up Cost, and Other Government Restrictions. You Rolled a..... The Beer Industry The beer industry does something that you wouldn't imagine, even in your wildest dreams. This industry produces.... beer. Of course you think to yourself, "there are hundreds of different kinds of beer that I can use to become inebriated. Right?" Unfortunately, 80% of the time, that beer would have been made by the oligopoly of Anheuser-Busch and Miller Coors which control (shocker) 80% of the market for beer in America. These two firms are an ologipoly because they're extremely large compared to the rest of the market, cooperatively raise prices (such as when they both did during the recession in 2009), and have high entry barriers due to patents on brewing, price to advertise a new beer, price of building a new factor, and necessity of government permits to distribute beer. You Rolled a....................... Characteristics of Monopolies: - One firm selling all the output in a market
- That firm's product has to be a unique product without any close substitutes.
- There must be a relatively high demand for that product.
- There are restrictions on entry and exit of the market
- Specialized production techniques unavailable to other potential producers
- The firms demand curve is also the market demand curve Characteristics of
Monopolies You Rolled a...... Water utility companies such as Loudoun Water have a monopoly over their operating regions. Theses companies are monopolies because they are:
-There's a single firm, Loudoun Water, providing water to everyone who lives in Loudoun County without any outside competition.
-They're selling a product without any close replacements: Water. We literally can't live without it. Even if we buy bottled water we can't use it for showers, baths, etc.
-There are extreme barriers to entry because it costs a huge amount of money to build new pipes into people's homes. Not to mention extremely inefficient. Furthermore, the government bars the water company from easily exiting the industry because if the government deems that the company's product is necessary for the public good, the government can prevent the firm from exiting that market.
-Their demand curve is the market's demand curve. You rolled a....... Monopolistically Competitive - A monopolistically competitive market has four major components
1: There need to be a large amount of relatively small firms in comparison to overall size of the market, each of whom can exert some amount of control over the industry.
2: Each firm has to sell a similar, but not completely same, product. For example, Coke and Pepsi. Both are essentially the same, but are also slightly different.
3: Relative resource mobility; firms are relatively free to enter and exit the industry. Some restrictions may be in place but not many.
4: Extensive, but not perfect, knowledge; the consumers know most of what is different between the products, and producers know well enough how opponent products are created. For example, in America, there are dozens of different toothpaste brands, each of which sells essentially the same product: stuff to clean your teeth with. Each type of toothpaste has some kind of difference to them. Some may be promoted as whitening, some as tartar removal, some as bacteria killing, etc. However, each is very similar in its use. Furthermore, there are not huge barriers to entry or exit. There are no patents on the general formula for toothpaste, no governmental restrictions and regulations on who can or can't make toothpaste, and no restrictions on when a firm can exit the industry. Finally, knowledge is very extensive. People generally know what is the difference between each toothpaste type, and each individual firm generally know the manufacturing technique for making toothpaste. These companies such as Colgate, Crest, Sensodyne, Arm & Hammer, all compete with a similar product for the money of the consumer. You Rolled a..... Perfectly Competitive Perfectly competitive industries are characterized by four things.
1. A large number of small firms in relation to the size of the market.
2. A completely identical product sold by all the firms
3. Freedom of exit and entry into the industry
4. Perfect knowledge by consumers of prices and by firms of technology in producing said product. The open software market is an example of a perfectly competitive industry.
1. In the free/open software market, there are essentially an infinite amount of possible firms selling a product.
2. That product is exactly the same as any other product because it's code and can be copied and pasted an indefinite amount of times without any difference between one and another.
3. There is complete freedom of entry and exit in the free/open software market.
4. All knowledge is free and accessible.
An example of a firm in the free/open software market would be the Linux Kernel You rolled.........
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