Monopoly, oligopoly, monopolistic competition
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Texas Tech High ECON Chapter 9 Lesson 4 sectn 2 Monopoly, oligopoly, monopolistic competition
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Monopoly, oligopoly, monopolistic competition
- 1. four FOUR four FOUR four FOUR four FOUR four FOUR four FOUR four FOUR four FOUR four FOUR four FOUR four FOUR four FOUR four FOUR four FOUR four FOUR four FOUR four FOUR four FOUR four FOUR four FOUR four FOUR four FOUR fou NINE nine NINE nine NINE nine NINE nine NINE nine nine NINE nine NINE nine NINE nine NINE nine NINE nine NINE nine NINE nine NINE nine NINE nine nine NINE nine NINE nine NINE nine NINE nine NINE nin two TWO two TWO two TWO two TWO two TWO two TWO two TWO two TWO two TWO two TWO two TWO two TWO two TWO two TWO two TWO two TWO two TWO two TWO two TWO two TWO LESSON Chapter Section p a g e 1 5 2
- 2. In this section we’ll be looking at advertising’s major role in 2 types of market structures.
- 3. Perfect Competition is a ______ structure It has many______________ , & no single __________can affect prices. market buyers & sellers buyer/seller
- 4. In the U.S. Most industries represent some form of IMPERFECT COMPETITION 3 types of IMPERFECT MKT STRUCTURES Monopoly / Oligopoly / Monopolistic Competition
- 5. The most extreme form of IMPERFECT COMPETITION A Pure Monopoly One seller controls the supply of the good/service & thus determines the price. EX: ?Some local utility companies Few such markets exist in the world
- 6. So a monopoly is a market situation in which a single supplier makes up an entire industry for a good/service with no close substitutes. NEXT: characteristics of a monopoly
- 7. 1 A SINGLE SELLER 2 NO SUBSTITUTES 3 NO ENTRY 4 Almost Complete MKT Price Control Characteristics of a Monopoly
- 8. 3. NO ENTRY Monopolist is protected by obstacles to competition preventing others from entering the market.
- 9. 4. Almost Complete MKT Price Control By controlling the available supply, the monopolist can control the market price.
- 10. BARRIERSTOENTRY IF a monopoly is making all the profits in a particular industry, why don’t others jump in to get a share? OBSTACLES to COMPETITION that prevent others from entering a market
- 11. BARRIERS TO ENTRY LEGAL EXAMPLE:Somestatelaws preventacompetingelectric, gasorwatercompanyfrom operatingsomewherewherea publicutilitycompanyalready providesservice. FEAR of WASTEFUL DUPLICATION E X A M P L E : 3watercompaniestryingto laywatermainsalongstreets
- 12. Another BARRIER of ENTRY COST OF GETTING STARTED OR Excessive Money Capital Costs E X A M P L E : CAR & STEEL INDUSTRIES BIGinitalinvestment– costof equipment = HUGE startup costs keep companies from entering some industries. Owning essential raw materials is also a barrier of entry. EXAMPLE:TheDeBeersCompany
- 13. 4 Types of Pure Monopolies Distinction iswhytheyexist 1.Natural 2.Geographic 3.Technological 4.Government
- 14. IN THE PAST, they thought having 1 company providing a public good or service was + efficient, or natural. SO Gov. granted exclusive rights to NATURAL MONOPOLIES = providers of such things as utilities, AND ???
- 16. ECONOMIES OF SCALE LOW PRODUCTION COSTS Large Output
- 17. GEOGRAPHIC MONOPOLY EXAMPLE: Store in remote Alaskan Village NOBODYinterested
- 18. MAIL-ORDER, INTERNET & CATALOGUES Putting a dent in the number of Geographic Monopolies
- 20. PATENT TO MAKE, USE, or SELL an invention for a set number of years Exclusive Right
- 21. Exclusive Right To SELL, PUBLISH, or REPRODUCE creative works for a set number of years
- 22. GOVERNMENT MONOPOLY SIMILAR TO Natural, Geographic, or Technological Monopoly?S I M I L A R TO N a t u ra l , M o n o p o l y Thedifferenceisthatthegovernmentitself holdsthemonopoly EXAMPLES?
- 25. BUT justhowimportantaremonopoliesTODAY? MOREorLESSthaninthePAST? Monopolies are FAR LESS important today! BUT why is that?
- 26. GEOGRAPHIC MONOPOLIES are losing out to Mail-order businesses & E-commerce
- 27. NATURAL MONOPOLIES are being broken up by Technology & Government Deregulation
- 28. TECHNOLOGICAL MONOPOLIES RARELY last longer than the PATENT IF even that long. Why? NEW PATENTS for products with SLIGHT VARIATIONS EXAMPLE: Early 1980’s MICROCOMPUTER REVOLUTION. Companies made changes to products & added features to get patents
- 29. OLIGOPOLY MONOPOLY – 1 supplier SeveralsuppliersWITHsomeCONTROLoverPRICE= Page 155
- 30. 5 CONDITIONS for a MKT structure to be an OLIGOPOLY Domination–Few Sellers BarrierstoEntry Identical/SlightlyDifferentProducts Non-PriceCompetition Interdependence
- 31. Domination by a Few Sellers Several LARGE firms to80%ofthemarket
- 32. D o m i n a t i o n b y a F e w S e l l e rs BARRIERS to ENTRY HIGH DIFFICULT CapitalCosts for new companies to enter major markets
- 34. AIRLINE TRAVEL
- 35. DOMESTIC CARS
- 37. NON- PRICE COMPETITION ADVERTISING Emphasizes MINOR differences
- 39. INTERDEPENDENCE Any change on the part of 1 firm will cause a reaction on the part of other firms in the oligopoly.
- 40. FIGURE 38 page 155 U.S. Industries TOP 4 firms in each produce over 80% of TOTAL OUTPUT
- 43. 85% SOFTDRINKS
- 46. Non-PriceCompetition Oligopolists engage in EXAMPLE: Some car makers have an oligopoly on the domestic car market. Millions/billions spent on advertising to differentiate their products in the consumer mind.
- 47. PRODUCT DIFFERENTIATION The price you pay for BRAND product isn’t just based on supply/demand. Manufacturers’ use of minor differences in quality/features to try to differentiate between similar goods & services
- 48. INTERDEPENDENT BEHAVIOR FEW FIRMS in oligopolies SO When 1 airline cuts its airfares to gain MKT share, the others follow suit PRICE WAR LOWER PRICES Initially good for consumers Ifpricesdroptoomuch,anairlinemaybeforcedoutofbusiness FEWERairlines/LESSCOMPETITION/PRICESINCREASEinthelongrun
- 49. Competing Firms in an Oliogopoly Secretly agree to RAISE PRICES / DIVIDE the MKT
- 51. A n i m p o r t a n t fo r m o f C O L LU S I O N Anarrangementamonggroupsofindustrialbusinesses,often indifferentcountries,toreduceinternationalcompetition
- 52. MOST COMMON U.S. Market Structure Monopolistic L A R G E # o f S E L L E R S o f f e r S I M I I L A R , s l i g h t l y d i f f e r e n t P R O D U C T S EXAMPLES:?
- 56. Monopolistic Competition MKT situation LARGE # of SELLERS Offering SIMILAR products EACH has SOME CONTROL over PRICE
- 58. M A N Y S E L L E R S No SINGLE SELLER / SMALL GROUP dominates the market
- 59. ENTRY intoMONOPOLISTICCOMPETITION is easierthan in a monopoly/ oligopoly DISADVANTAGE HIGHCostofADVERTISING
- 61. NON-PRICE COMPETITION Businesses compete by using PRODUCT DIFFERENTIATION & by ADVERTISING
- 62. SOME CONTROL over PRICE BuildingCUSTOMERLOYALTYthruPRODUCTDIFFERENTIATION, eachfirmhasSOMECONTROLoverthePRICEitcharges
- 63. MONOPOLISTICCOMPETION&OLIGOPOLY are similar B I G D I F F E R E N C E / # o f S E L L E R S OLIGOPOLY – FEW FIRMS dominate an industry. CONTROL over PRICE is interdependent. MONOPOLISTIC COMPETIONhasMANYFIRMS,NOreal INTERDEPENDENCE/SLIGHTDIFFERENCEamongproducts
- 64. ADVERTISING Competitive EvenMOREimportantinMONOPOLISTICCOMPETITION ADVERTISING leads to PRODUCT DIFFERENTIATION & competition FOR CONSUMER DOLLARS SHELF SPACE
- 65. When advertising works, companies can CHARGE MORE for their products Nike, The Gap and Procter & Gamble spend millions / year
- 66. Table Page 158
- 67. PERFECT Competition MANY Sellers NearlySIMILARProducts EASY Entry ControlOverPrice: Market EXAMPLES:
- 68. MONOPOLY oneseller Uniqueproduct NO close substitute to product / service BarrierstoEntry VERY HIGH Control Over Price CONSIDERABLE EXAMPLES: Water,electricity,1stclassmaildelivery
- 69. MONOPOLISTIC COMPETITION MANY SELLERS Differentiated products Barriers to Entry EASY Control Over Price YES.Notasmuchasmonopoly; ConsumerDemand EXAMPLES: Clothing, Restaurant meals
- 71. COMING UP NEXT Section 3 Government Policies Toward Competition