7-3: OTHER MARKET STRUCTURES

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7-3 OTHER MARKET STRUCTURES
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CHARACTERISTICS OF MONOPOLISTIC COMPETITION

• Monopolistic competition when many sellers offer
  similar, but not standardized products

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CHARACTERISTICS OF MONOPOLISTIC COMPETITION
(CONTINUED)

• 2 features of monopolistic competition are
  product differentiation and nonprice competition
• Product differentiation attempt to distinguish a
  product from similar products

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CHARACTERISTICS OF MONOPOLISTIC COMPETITION
(CONTINUED)

• Nonprice competition using factors other than
  low price, such as style, service, advertising,
  or giveaways to convince consumers to buy their
  products

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4 CHARACTERISTICS OF MONOPOLISTIC COMPETITION

• 1. Many sellers and many buyers
• Meaningful competition exists
• Example there are many restaurants where you can
  buy a hamburger

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4 CHARACTERISTICS OF MONOPOLISTIC COMPETITION
(CONTINUED)

• 2. Similar but differentiated products
• Sellers try to convince consumers that their
  product is different from that of the competition

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4 CHARACTERISTICS OF MONOPOLISTIC COMPETITION
(CONTINUED)

• 3. Limited control of prices
• Product differentiation gives producers limited
  control over price
• Consumers will buy substitute goods if the price
  goes too high

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4 CHARACTERISTICS OF MONOPOLISTIC COMPETITION
(CONTINUED)

• 4. Freedom to enter or exit the market
• No huge barriers to enter a monopolistically
  competitive market
• When firms make a profit, other firms enter the
  market and increase competition

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EXAMPLES OF MONOPOLISTIC COMPETITION

• Banks Sporting Goods
• Radio Stations Fish and Seafood
• Clothing Jewelry
• Computers Health Spas
• Frozen Foods Apparel Stores
• Canned Goods Convenience Stores

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OLIGOPOLY

• Definition market structure in which only a few
  sellers offer a similar product
• Few large firms have a large market share
  percent of total sales in a market

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OLIGOPOLY (CONTINUED)

• There are few firms in an oligopoly due to high
  start-up coststhe expenses that a new business
  faces when it enters a market

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4 CHARACTERISTICS OF OLIGOPOLIES

• 1. Few sellers and many buyers
• Generally where the 4 largest firms control 40
  of the market
• Example breakfast cereal industry

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4 CHARACTERISTICS OF OLIGOPOLIES (CONTINUED)

• 2. Standardized or differentiated products
• Products can be standard such as steel
• They try to differentiate themselves based on
  brand name, service, or location
• Or, products can be differentiated such as cereal
  and soft drinks
• They use marketing strategies to separate them
  from competitors

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4 CHARACTERISTICS OF OLIGOPOLIES (CONTINUED)

• 3. More control of prices
• Each firm had a large enough share of the market
  that its decisions about price and supply affect
  one another

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4 CHARACTERISTICS OF OLIGOPOLIES (CONTINUED)

• 4. Little freedom to enter or exit market
• Set-up costs are high
• Firms have established brands, making it hard for
  new firms to enter the market successfully

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OLIGOPOLY EXAMPLES

• Soft drinks/Sodas
• Coca-Cola (44) Coke, Sprite, Barq, Fanta,
  Mello Yello, etc.
• Pepsi (32) Pepsi, Mountain Dew, Mug, Slice,
  etc.
• Cadbury Schweppes (16) Seven-Up, Dr. Pepper,
  Schweppes, A W, Canada Dry, Sunkist, Squirt,
  etc.

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OLIGOPOLY EXAMPLES

• CPU chips Duopoly (an industry with only two
  firms) Intel and AMD
• Beer Anheuser-Busch, Coors, Miller
• Automobiles (GM, Chrysler, Toyota, etc.)

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7-4 REGULATION AND DEREGULATION TODAY
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REGULATION

• Definition set of rules or laws designed to
  control business behavior to promote competition
  and protect consumers

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ANTITRUST LEGISLATION

• Definition laws that define monopolies and give
  government the power to control them and break
  them up

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TRUST

• Trust when a group of firms are combined to
  reduce competition in an industry
• Example Standard Oil Company

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MERGER

• Merger when 2 firms join together to become 1
• If a merger will eliminate competition it will be
  denied by the government

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ENFORCING ANTITRUST LEGISLATION

• The FTC and the Department of Justice are
  responsible for enforcing antitrust laws

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DEREGULATION

• Definition reducing or removing government
  control of a business
• Results in lower prices for consumers and more
  competition
• Example airline industry was deregulated in 1978

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QUESTIONS

• 1. In 2005, a major U.s. automaker announced a
  new discount plan for its cars for the month of
  June. It offered consumers the same price that
  its employees paid for new cars. When the
  automaker announced in early July that it was
  extending the plan for another month, the other 2
  major U.S. automakers announced similar plans.
  What market structure is exhibited in this story
  and what specific characteristics of that market
  structure does it demonstrate?

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• 2. Why do manufacturers of athletic shoes spend
  money to sign up professional athletes to wear
  and promote their shoes rather than
  differentiating their products strictly on the
  basis of physical characteristics such as design
  and comfort?

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• 3. The Telecommunications Act of 1996 included
  provisions to deregulate the cable industry. In
  2003, consumers complained that cable rates had
  increased by 45 since the law was passed. Only
  5 of American homes had a choice of more than 1
  cable provider in 2003. Those homes paid about
  17 less than those with no choice of cable
  provider. How effective had deregulation been in
  the cable industry by 2003? Explain your
  reasoning.