Monopolies and oligopolies

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Monopolies and oligopolies

  1. 1. Monopolies and Oligopolies Economics 1
  2. 2. What is a Monopoly?! <ul><li>It forms when others prevent firms from entering a market that has a single supplier </li></ul><ul><li>One seller, but many buyers </li></ul><ul><li>Charge high prices </li></ul><ul><li>They are illegal in the U.S.! </li></ul>
  3. 3. Natural Monopoly <ul><li>Natural Monopoly-a market that runs most efficiently when one large firm supplies all of the output </li></ul><ul><li>Ex.-Cincinnati Water Works </li></ul><ul><li>The Government usually steps in to allow one company to control these types-they control the price that way also! </li></ul><ul><li>Technological development can cause a natural monopoly to end </li></ul>
  4. 4. Government Monopoly <ul><li>Obviously created by the government </li></ul><ul><li>Patents-gives a company exclusive rights to sell a new good or service for a specific period of time. </li></ul><ul><ul><li>Guarantees that companies can profit from their own ideas without competition </li></ul></ul><ul><ul><li>Encourages development of new products </li></ul></ul><ul><li>Franchise-the right to sell a good or service within an exclusive market-Our School! </li></ul><ul><li>License-a government issued right to operate a business </li></ul>
  5. 5. Baseball?! <ul><li>Did you know that Major League Baseball has an exemption from monopoly laws?! </li></ul><ul><li>They limit the number and location of teams! </li></ul>
  6. 6. Price Discrimination <ul><li>Division of customers into groups based on how much they will pay for a good </li></ul><ul><li>Discounts for seniors, children, students, etc. </li></ul>
  7. 7. Targeted Discounts <ul><li>Discounted airline fares </li></ul><ul><li>Manufacturers’ rebate offers </li></ul><ul><li>Senior Citizen or Student Discounts </li></ul><ul><li>Children fly, eat, or stay free promotions </li></ul>
  8. 8. Monopolistic Competition <ul><li>A market structure in which many companies sell products that are similar but not identical </li></ul><ul><ul><li>Jeans, bagel stores, ice cream stores, gas stations, etc. </li></ul></ul><ul><li>These are Very common! </li></ul>
  9. 9. Four Conditions of Monopolistic Competition <ul><li>Many firms </li></ul><ul><li>Few artificial barriers to entry </li></ul><ul><ul><li>No patents </li></ul></ul><ul><li>Slight control over price </li></ul><ul><ul><li>Generic vs. name brand </li></ul></ul><ul><li>Differentiated Products </li></ul><ul><ul><li>Making a product different from other similar products </li></ul></ul>
  10. 10. Oligopoly <ul><li>A market structure in which a few large firms dominate a market </li></ul><ul><li>High prices and low output </li></ul><ul><li>Air travel, breakfast cereals, household appliances </li></ul>
  11. 11. How do they work?! <ul><li>They keep other companies from competing-patents, etc. </li></ul><ul><ul><li>Coke vs. Pepsi vs. ????????????????? </li></ul></ul><ul><li>Sometimes oligopolies work together to ban other forms of competition-this can be a monopoly! </li></ul>
  12. 12. Last Slide! <ul><li>Price war- a series of competitive price cuts that lowers the market price below the cost of production </li></ul><ul><li>Collusion- an agreement among firms to divide the market, set prices, or limit production </li></ul><ul><li>Price fixing- an agreement among firms to charge one price for the same good </li></ul><ul><li>Cartel- a formal organization of producers that agree to coordinate prices and production </li></ul><ul><ul><li>Illegal in the U.S.! </li></ul></ul>

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