Learning Objectives:

define the term monopoly and explain

the condition under which monopoly
exists;

explain market structures (perfect

competition, monopoly, oligopoly, and
monopolistic competition)

identify how perfect competition

operates.
MARKET STRUCTURE
It is defined as organizational
and other characteristics of a
market.
 MARKET
STRUCTURE

What is the primary

What is competition?
aim/goal of businesses?

Striving against others To maximize

to reach an objective profits
• Type of market structure
influences how a firm
behaves:
• Pricing
• Supply
• Barriers to Entry
• Efficiency
• Competition
PERFECT COMPETITION
 PERFECT COMPETITION

Advantages of Perfect Competition:

• High degree of competition helps
allocate resources to most efficient
use
• Price = marginal costs
• Normal profit made in the long run
• Firms operate at maximum efficiency
• Consumers benefit
MONOPOLISTIC COMPETITION

Imperfect
• Many buyers and sellers
• Products differentiated
• Relatively free entry and exit
• Each firm may have a tiny
‘monopoly’ because of the
differentiation of their product
• Firm has some control over price
OLIGOPOLY COMPETITION

Competition amongst the few

• Industry dominated by small number
of large firms
• Many firms may make up the industry
• High barriers to entry
• Products could be highly differentiated
– branding or homogenous
• Non–price competition
• Potential for collusion?
• Abnormal profits
• High degree of interdependence
between firms
Duopoly:
• Industry dominated by two
large firms
• Possibility of price leader
emerging – rival will follow
price leaders pricing
decisions
• High barriers to entry
• Abnormal profits likely
 MONOPOLY

Monopoly:
Pure monopoly – industry is
the firm!
Actual monopoly – where firm
has >25% market share
Natural Monopoly – high fixed
costs – gas, electricity, water,
telecommunications, rail
 MONOPOLY

• High barriers to entry

• Firm controls price OR
output/supply
• Abnormal profits in long run
• Possibility of price
discrimination
• Consumer choice limited
• Prices in excess of MC
 ADVANTAGES
• May be appropriate if natural
monopoly
• Encourages R&D
• Encourages innovation
• Development of some
products not likely without
some guarantee of monopoly
in production
• Economies of scale can be
gained – consumer may
benefit
DISADVANTAGES
• Exploitation of consumer –
higher prices
• Potential for supply to be
limited - less choice
• Potential for inefficiency
DEFINITION OF TERMS

• BARRIERS- are obstacles that

make it difficult to enter a
given market. These hindrances
may include government
regulation and patents, technology
challenges, start-up costs, or
education and licensing
requirements.
DEFINITION OF TERMS

• COLLUSION- It is an agreement
among firms or individuals to divide a
market, set prices, limit production or limit
opportunities.
• Collusion most often takes place within the
market structure of oligopoly, where the
decision of a few firms to collude can
significantly impact the market as a whole.
DEFINITION OF TERMS

• PREDATORY PRICING- it is also

known as undercutting, is a pricing
strategy in which a product or service is
set at a very low price with the intention
to achieve new customers, or driving
competitors out of the market or to
create barriers to entry for potential
new competitors.
DEFINITION OF TERMS

• CONGLOMERATE- a combination of
multiple business entities operating in
entirely different industries under one
corporate group, usually involving a parent
company and many subsidiaries.
• Often, a conglomerate is a multi-industry
company. Conglomerates are often large
and multinational.
DEFINITION OF TERMS

• CARTEL- a group of apparently

independent producers whose goal is to
increase their collective profits by means of
price fixing, limiting supply, or other
restrictive practices.
• Cartels typically control selling prices, but
some are organized to force down the
prices of purchased inputs.
 GROUP
ACTIVITY
 Market # of Control Types of Barriers
Structure firms over goods to entry
1. Activity requires students
price
to imagine a world where Perfect
there are only monopolies Competition
and oligopolies.
2. They will be instructed to
Monopolistic
conduct a Quick Write.
3. This activity will be competition
completed on a blank
piece of paper and must Oligopoly
be completed by group.
4. Must be presented by a
representative Monopoly
Multiple Choice Quiz
1. Which of the following is not a type of market structure?
• a. Competitive monopoly
b. Oligopoly
c. Perfect competition
d. All of the above are types of market structures.
Multiple Choice Quiz
2. If a firm sells its output on a market that is characterized by many
sellers and buyers, a homogeneous product, unlimited long-run
resource mobility, and perfect knowledge, then the firm is a
a. a monopolist.
b. an oligopolist.
c. a perfect competitor.
d. a monopolistic competitor.
Multiple Choice Quiz
3. If a firm sells its output on a market that is characterized by a single
seller and many buyers of a homogeneous product for which there are
no close substitutes and barriers to long-run resource mobility, then the
firm is
• a. a monopolist.
b. an oligopolist.
c. a perfect competitor.
d. a monopolistic competitor.
Multiple Choice Quiz
4. If a firm sells its output on a market that is characterized by many
sellers and buyers, a differentiated product, and unlimited long-run
resource mobility, then the firm is
• a. a monopolist.
b. an oligopolist.
c. a perfect competitor.
d. a monopolistic competitor.
Multiple Choice Quiz
5. If a firm sells its output on a market that is characterized by few
sellers and many buyers and limited long-run resource mobility, then
the firm is
• a. a monopolist.
b. an oligopolist.
c. a perfect competitor.
d. a monopolistic competitor.
Multiple Choice Quiz
6. Which of the following markets comes close to satisfying the
assumptions of a perfectly competitive market structure?
• a. The stock market.
b. The market for agricultural commodities such as wheat or corn.
c. The market for petroleum and natural gas.
d. All of the above come close to satisfying the assumptions of
perfect competition.
Multiple Choice Quiz
7. Which of the following is a barrier to entry that typically results in
monopoly?
• a. The firm controls the entire supply of a raw material.
b. Production of the industry's product is subject to economies of
scale over a broad range of output.
c. Production of the industry's product requires a large initial capital
investment.
d. The firm holds an exclusive government franchise.
Multiple Choice Quiz
8. Which of the following types of firms is likely to be a monopolistic
competitor?
• a. A local telephone company.
b. An automobile manufacturer.
c. A restaurant.
d. All of the above are likely to be monopolistic competitors.
Multiple Choice Quiz
9. Product variation refers to
• a. an activity undertaken by a firm to increase demand.
b. a problem with quality control that tends to decrease demand.
c. an activity undertaken by a firm to make demand more price
inelastic.
d. None of the above is correct.
Multiple Choice Quiz
10. Which of the following industries is most likely to be
monopolistically competitive?
• a. The automobile industry
b. The steel industry
c. The car repair industry
d. The electrical generating industry
Assignment
• Group Work to be submitted and presented next meeting.
• Using a cartolina. Company Making using the template provided.
• Instructions and template will be given to the group leaders.
Box 1: Create an original logo.
Box 2: Come up with a unique company
name and slogan.
Box 3: Include an image of your product.
Box 4: This should simply contain the word
“Home.”
Boxes 5 – 9: These are your competitors.
(They sell like-products.)
Box 10: This is your “Mission Statement.”
Box 11: Your name (since you are the
founder!)
Box 12: A cleaver title for your company
description in box 13
• . Box 13: Five paragraphs discussing, the origin and
description of your company, what your produce, how
hard/easy it was to get into your industry (barriers of entry),
your competition, and why the prices you set are best for
the consumer.
• Box 14: Where your company (and the companies on box
15) fall on the market structure spectrum. (See top of
“market structures” worksheet.)
• Box 15: Four different companies representing each market
structure. These are real companies and must include their
logos. (One of each: Perfect Competition, Monopolistic
Competition, Oligopoly, and Monopoly.)
• Box 16: Social “media shout-out.” (Draw/show the icons).