four FOUR four FOUR four FOUR four FOUR fourFOUR four FOUR four FOUR four FOUR four FOURfour FOUR four FOUR four FOUR four FOUR fourFOUR four FOUR four FOUR four FOUR four FOURfour FOUR four FOUR four FOUR four FOUR fouNINE nine NINE nine NINE nine NINE nine NINE ninenine NINE nine NINE nine NINE nine NINE nine NINEnine NINE nine NINE nine NINE nine NINE nine nineNINE nine NINE nine NINE nine NINE nine NINE nintwo TWO two TWO two TWO two TWO two TWOtwo TWO two TWO two TWO two TWO two TWOtwo TWO two TWO two TWO two TWO two TWOtwo TWO two TWO two TWO two TWO two TWOLESSONChapterSectionpage152
In this section we’ll belooking at advertising’smajor role in 2 types ofmarket structures.
Perfect Competitionis a ______ structureIt has many______________ , & nosingle __________can affect prices.marketbuyers & sellersbuyer/seller
In the U.S.Most industries represent some form ofIMPERFECT COMPETITION3 types of IMPERFECT MKT STRUCTURESMonopoly / Oligopoly / Monopolistic Competition
The most extreme form ofIMPERFECT COMPETITIONA Pure MonopolyOne seller controls the supply of thegood/service & thus determines the price.EX: ?Some local utility companiesFew suchmarkets existin the world
So a monopolyis a market situation in which a single suppliermakes up an entire industry for a good/servicewith no close substitutes.NEXT: characteristics of a monopoly
1 A SINGLE SELLER2 NO SUBSTITUTES3 NO ENTRY4 Almost Complete MKT Price ControlCharacteristics of a Monopoly
3. NO ENTRYMonopolist is protected byobstacles to competitionpreventing others fromentering the market.
4. Almost Complete MKT Price ControlBy controlling the availablesupply, the monopolist cancontrol the market price.
BARRIERSTOENTRYIF a monopoly ismaking all the profitsin a particular industry,why don’t others jumpin to get a share?OBSTACLES to COMPETITIONthat prevent othersfrom entering a market
BARRIERS TO ENTRYLEGALEXAMPLE:Somestatelawspreventacompetingelectric,gasorwatercompanyfromoperatingsomewherewhereapublicutilitycompanyalreadyprovidesservice.FEAR of WASTEFUL DUPLICATIONE X A M P L E :3watercompaniestryingtolaywatermainsalongstreets
Another BARRIER of ENTRYCOST OF GETTING STARTEDOR Excessive Money Capital CostsE X A M P L E : CAR & STEEL INDUSTRIESBIGinitalinvestment– costof equipment= HUGE startup costs keep companiesfrom entering some industries.Owning essential raw materials is also abarrier of entry. EXAMPLE:TheDeBeersCompany
4 Types of Pure MonopoliesDistinction iswhytheyexist1.Natural2.Geographic3.Technological4.Government
IN THE PAST,they thought having 1 company providing apublic good or service was + efficient, ornatural.SOGov. granted exclusive rights toNATURAL MONOPOLIES= providers of such things as utilities,AND ???
Busservice,& cable TV.Thesize,orscale.ofmostnaturalmonopoliesgavethemECONOMIES OF SCALEBIG
ECONOMIES OF SCALELOW PRODUCTION COSTSLarge Output
GEOGRAPHIC MONOPOLYEXAMPLE: Store in remote Alaskan VillageNOBODYinterested
MAIL-ORDER, INTERNET & CATALOGUESPutting a dent in the number of Geographic Monopolies
BUTjusthowimportantaremonopoliesTODAY?MOREorLESSthaninthePAST?Monopolies are FARLESS importanttoday!BUT why isthat?
GEOGRAPHIC MONOPOLIESare losing out toMail-order businesses &E-commerce
NATURAL MONOPOLIESare beingbroken upbyTechnology & Government Deregulation
TECHNOLOGICAL MONOPOLIESRARELYlastlongerthan thePATENTIF even that long.Why?NEW PATENTS for products with SLIGHT VARIATIONSEXAMPLE: Early 1980’s MICROCOMPUTER REVOLUTION.Companies made changes to products & added features to get patents
Non-PriceCompetitionOligopolists engage inEXAMPLE: Some car makers have an oligopoly on the domesticcar market. Millions/billions spent on advertising todifferentiate their products in the consumer mind.
PRODUCT DIFFERENTIATIONThe price you pay for BRAND productisn’t just based on supply/demand.Manufacturers’ useof minordifferences inquality/features totry to differentiatebetween similargoods & services
INTERDEPENDENT BEHAVIORFEW FIRMS in oligopoliesSO When 1 airline cuts its airfares to gainMKT share, the others follow suitPRICE WARLOWER PRICESInitially good for consumersIfpricesdroptoomuch,anairlinemaybeforcedoutofbusinessFEWERairlines/LESSCOMPETITION/PRICESINCREASEinthelongrun
Competing Firms in an OliogopolySecretly agree to RAISE PRICES / DIVIDE the MKT
NON-PRICECOMPETITIONBusinesses compete by usingPRODUCT DIFFERENTIATION & by ADVERTISING
SOME CONTROL over PRICEBuildingCUSTOMERLOYALTYthruPRODUCTDIFFERENTIATION,eachfirmhasSOMECONTROLoverthePRICEitcharges
MONOPOLISTICCOMPETION&OLIGOPOLYare similarB I G D I F F E R E N C E / # o f S E L L E R SOLIGOPOLY – FEW FIRMS dominate an industry.CONTROL over PRICE is interdependent.MONOPOLISTIC COMPETIONhasMANYFIRMS,NOrealINTERDEPENDENCE/SLIGHTDIFFERENCEamongproducts
ADVERTISINGCompetitiveEvenMOREimportantinMONOPOLISTICCOMPETITIONADVERTISING leads to PRODUCT DIFFERENTIATION& competition FOR CONSUMER DOLLARSSHELF SPACE
When advertising works, companiescan CHARGE MORE for their productsNike, The Gap and Procter & Gamblespend millions / year