1) The document discusses different market structures including perfect competition, monopolistic competition, oligopoly, and monopoly. 2) Perfect competition has many buyers and sellers of identical products, while monopolistic competition has differentiated products. Oligopoly has a few large firms that influence each other's pricing. Monopoly is a single seller of a product. 3) The characteristics that define each structure are described, such as how monopolies are price makers rather than price takers like in perfect competition.

1. Market Structures
Academic Decathlon—Lesson 10
Berryhill Economics

2. Market Structures
 Laissez Faire—philosophy that the
government should not interfere with
commerce or trade (French term meaning
“allow them to do”)
 Adam Smith’s theory that government is
only to protect private property, enforce
contracts, settle disputes, and protect
domestic companies from foreign
competitors

3. Market Structures
 Wealth of Nations, written by Adam Smith
in 1776, enforced this Laissez Faire policy
and the U.S. adopted many of its
economic ideas and the government
played a small (if any) roll in the market of
good and services
 By the 1800s, however, competition was
weakening

4. Market Structures
 Due to mergers and acquisitions, many small
firms in an industry were combined into few very
large businesses
 This is when government started stepping in and
regulating the market more
 The government tries to keep competition active
in most markets, but there are a number of
different types of markets classified according to
the conditions that prevail in them

5. Market Structure
 Market structure—the nature and degree
of competition among firms in the same
industry

6. Perfect Competition
 Perfectcompetition—large number of well
informed independent buyers and sellers
whom exchange identical products
 Example: local vegetable farming
 Necessary Conditions:
 Large number of buyers and sellers; no single
buyer or seller is large enough or powerful
enough to affect price

7. Perfect Competition
 Necessary Conditions (cont.)
 Buyers and sellers deal in identical products
 Each buyer and seller acts independently—
this competition is one of the forces that keep
prices low
 Buyers and sellers are reasonably well-
informed about products and prices
 Buyers and sellers are free to enter
into, conduct, or get out of business

8. Perfect Competition
 Market forces of supply an demand
establish the equilibrium price.
 The perfectly competitive firms operate
where marginal cost = marginal revenue;
there profits are maximized.

9. Perfect Competition
 Few, if any, perfectly competitive markets
exist, but local vegetable farming comes closest.
 Imperfect competition is the name given to a
market that lacks one or more of the conditions
of perfect competition; most firms in the U.S. fall
into the imperfect competition classification.
 Perfect competition is still important because
economists use it to evaluate other market
structures.

10. Monopolistic Competition
 Monopolistic competition--market structure
that has all the conditions of perfect
competition EXCEPT for identical products
 Example: Athletic shoe industry
 Non-price competition—the use of
advertising, give-aways, or other
promotional campaigns to convince buyers
that the product is somehow better than
another brand

11. Monopolistic Competition
 Product differentiation—real OR imagined
differences between competing products
in the same industry
 If a firm can differentiate a product in the
mind of the buyer, the firm can raise its
price.
 Profit is again maximized where MC=MR

12. Oligopoly
 Oligopoly—a market structure in which a
few very large sellers dominate the
industry
 Product may be differentiated (like the
auto industry) or standardized (like the
steel industry).
 Examples: soft drinks, airlines, fast food,
autos

13. Oligopoly
 Because oligopolists are so large,
whenever one firm acts, the other firms
usually follow.
 This is called interdependent behavior—
prices tend to move together across the
industry.
 Another type of interdependent behavior is
collusion—a formal agreement to set
prices or to cooperate in some manner.

14. Oligopoly
A type of collusion is price fixing—
agreeing to charge the same or similar
prices for a product.
 Firms can also collude to divide the market
so all are guaranteed to sell a certain
amount.
 Because collusion usually restrains trade
and fair competition, it is illegal.

15. Oligopoly
 Because prices within an oligopolistic
market tend to move together, most firms
tend to compete on a nonprice basis with
advertising or other product differentiating.
 Oligopolists maximize profits where
MC=MR.

16. Monopolies
 Monopoly—market structure with only one
seller of a particular product
 Very few monopolies exist in the U.S.
because of anti-trust laws—laws that
outlaw monopolies.

17. Types of Monopolies
 Natural monopoly—a market situation where the
costs of production are minimized by having a
single firm produce the product. Examples:
telephone companies in one area, public utilities
 Justification for a natural monopoly is economies of
scale—a situation in which the average cost of
production falls as the firm gets larger
 Geographic monopoly—a monopoly based on
the absence of other sellers in a certain
geographic area. Example: gas station on a
lonely highway

18. Types of Monopolies
 Technological monopoly—a monopoly
based on ownership or control of a
manufacturing method, process, or other
scientific agreement. Example:
companies with patents or copyrights
 Government Monopoly—a monopoly the
government owns and operates.
Examples: uranium, water use, etc.

19. Monopolies
 Monopolies are price makers—they do not
rely on supply and demand to set the
market price (because they are the only
supplier).
 Monopolies will charge more for its
product if not regulated, but it will still
operate at the profit maximizing point of
MC=MR.