Whats a market structure?it s defined as the following It s the organization of a market Based mainly on the degree of competition among producers

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1 Whats a market structure?it s defined as the following It s the organization of a market Based mainly on the degree of competition among producers 1.Number of producers: Markets with more producers are more competitive. 2. Similarity of products:the more similar products are, the greater the competition among producers. 3. Ease of entry:markets with fewer restrictions are easier to enter, thus having more producers.=more competitive. 4. Control over prices:the more competitive the market, the less power producers have to set prices. (Market Power)

2 How many market structures are there??? 1. Perfect Competition 2. Monopoly 3. Oligopoly 4. Monopolistic Competition

3 Perfect Competition Most competitive market structure, due to a large number of firms producing essentially the same product. Economists consider this perfect competition to be the most efficient market structure. Relatively rare, as it exists among producers of agricultural products. Many producers and consumers: Promotes competition Identical products: consumers do not distinguish among products. Examples, grain, cotton, sugar and crude oil. Easy to enter the market: Few restrictions, existing producers face new competition and not one producer controls the market. No control over prices: Producers have no market power, supply and demand determine price.

4 Monopoly Imperfect competition because these markets do not allocate goods and Services in the most efficient way. Producers have market power to set prices. A single producer of a product: Single producer controls the market. Monopolies produce or provide a unique good or service. THERE ARE NO SUBSTITUTES! No other producers provide similar goods or services. High barriers to entry: The main factor that allows Monopolies to exist are high barrier to entry that limit or Prevent other producers from entering the market. Can set the price of a product without being undercut by competitors. RARE Three types Resource Monopolies: Single producer owns a key natural resource. Government created: Government gives patents or copyrights, public franchises and licenses. Natural Monopoly: Producing more efficiently

5 Oligopoly A market structure dominated by a few firms that produce similar or identical products. It is a less competitive market system. Due to the size of an economy, in which large producers have an advantage over smaller producers. Few producers:small number of firms control the market. An industry's top 4 producers must control 60% of the market to be considered an oligopoly. Similar products: Producers offer essentially the same product, with small variations. High barriers to entry: High start-up costs, a few firms enjoy such a large scale market. Some control over prices: Firms often influence the price decisions of other firms in the market. Firms are dependent on one another. Price Leadership: Smaller firms follow the large firms in pricing or price wars can develop. Price wars are hard on producers but great for consumers.

6

7 Monopolistic Competition The market we encounter most often in our daily lives. A large number of producers provide goods that are similar but varied. Many Producers: In a large scale economy restaurants compete for your business, the same is true gas stations. Different products: Firms desire to distinguish their goods and services from those of other firms. Products are substitutes for one another. Few barriers: Low start-up costs, much easier to become an entrepreneur. Some control over prices: Because producers control their brands they also can control prices. Substitutes from different firms limit market power. Firms use non price competition, to demonstrate how their products are different and better than others. All about competitive advantage! Status and image are critical, after all the goal of each market is to increase Sales and market share.

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