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Slide 1
©
2002South-Western Publishing
•
Pure competition
is a standard against which other market structures are compared. The product is perfectly undifferentiated.•When there are many firms, but the product isdifferentiated, the market is
monopolisticallycompetitive
.
»This
brand competition
often involvesadvertising campaigns and promotional expendituresto stress often minor distinctions among products
Pure Competition andMonopolistic Competition
Chapter 10
 
Slide 2
Forces of Competition
•Michael Porter, in his C
ompetitive Advantage,
lists 5 forcesthat determine competitive advantage.»
Substitutes
(threat of substitutes can be offset by brandsand special functions served by the product).»
Potential Entrants
(threat of entrants can be reduced byhigh fixed costs, scale economies, restriction of access todistribution channels, or product differentiation).»
Buyer Power
(threat of concentration of buyers).»
Supplier Power
(threats from concentrated suppliers of key inputs affect profitability).»
Intensity of Rivalry
(market concentration, pricecompetition tactics, exit barriers, amount of fixed costs,and industry growth rates impact profitability).
 
Slide 3
Market Structure:
Competition
Pure Competition assumes:
1.a very large number of buyers and sellers2.homogeneous product (standardized)3.free entry and exit (no barriers)4.no collusion among the firms5.complete knowledge of all market informationThese assumptions imply several things about competitivemarkets.
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