The Competitive

1
Chapter 2

• The Competitive
• Environment

2
Definitions

• Market All the possible buyers and sellers of a
  product or commodity
• Consumers The final buyers who buy to consume
• Industry A set of competing firms producing
  similar products or a commodity in a market

3
Market Models

• Perfect competition
• Imperfect competition
• Monopolistic competition
• Oligopoly

4
Perfect Competition

• A competitive market made up of many competing
  firms, each of which is too small for its
  independent decisions to influence the market in
  a way perceptible to the firm.
• In perfect competition
• All firms sell same commodity
• Firms are price takers
• Easy entry into and exit out of market as prices
  change

5
Perfectly Competitive Firm,Short Run
6
Imperfect Competition

• Sales of differentiated products rather than
  commodities
• Advertising usually profitable
• Firms are price makers to some degree

7
Monopolistic Competition

• Market contains many firms, each competing to
  sell a product or service that is somewhat
  different
• Also known as differentiated competition
• So much competition that price results may
  resemble those in perfect competition
• Easy entry into and exit out of market

8
Firms inMonopolistic Competition
9
Oligopoly

• Marketing competition among a few firms of fairly
  similar size, selling differentiated products
• Firms in market interdependent consider
  competition when making strategic decisions
• Entry into market not easy
• Buyers sensitive to price differences price
  leader may take action in changing prices

10
Market Models Compared
11
Supply and Demand

• Law of supply
• Sellers will offer more at higher prices than at
  lower prices, other factors holding constant
• Law of demand
• Quantity of a good purchased will increase as its
  price is reduced

12
Supply and DemandEquilibrium
13
Short- and Long-RunSupply and Demand Adjustments
14
Short- and Long-RunSupply and Demand Adjustments

• In a firm in perfect competition

15
Demand ChangesMonopolistic Competition
16
Demand Changes inOligopolistic Markets

• Demand increases experienced by individual seller
  as increase in volume sold
• Questions that result
• Raise prices?
• Expand facilities?
• How will rivals react to actions?
• Will new sellers enter market?

17
When Buyers Compete

• Oligopsony
• When few buyers compete in a market
• Monopsonistic competition
• When numerous buyers compete

18
Class Exercise

• Choose an agribusiness that sells your assigned
  commodity and identify
• Size
• Sales
• Scope of product line
• Worth (if public)
• Number of employees
• Locations globally
• Market structure
• Industry sector