COMPLETE CHAPTER 8 NOTES
FOUR MARKET STRUCTURES
1.
Monopoly-
One seller
2.
Oligopoly-
Fewer sellers
3.
Monopolistic
Competition: Many Sellers
4.
Perfect
Competition – Very Many sellers
PERFECT COMPETITION
When
stores sell the same products. Example: Stores selling T-Shirts on the coast of
Florida.
5 Conditions Of Perfect
Competition
1.
Large market-
You have a lot of sellers (producers) and buyers (consumers).
Tons of stores sell T-shirts.
2.
Similar Product-
Items are near Identical. Shirts
are pretty much the same.
3.
Easy Entry and Exit
Competitors can move freely in and out of business, without
restrictions and without start up costs. You can buy t-shirts on the
Internet…cheaply, easy to start your own store
4.
Easily obtainable
Information
Info about products and costs are
easy to obtain. Internet
5.
No control over price
Supply and Demand controls the
market, not a single seller or buyer.
IMPERFECT COMPETITION
Exist when any individual or group
buys or sells a good or service in amounts large enough to affect price. EXAMPLES: Monopoly, Oligopoly
1.
PURE MONOPOLY
Is the most extreme form of imperfect competition. Example:
MLGW
Pure Monopoly has Four Characteristics
1.
Single seller
2.
No substitutes
3.
No Entry
Barriers
of entry- obstacles prevent others from entering the market
1.
Start up cost
2.
Government Restrictions
3.
Control of Resources
ii. Consumer Loyalty
4.
Control over prices
Cartel
·
A group of businesses that
join together to dominate a market.
·
Businesses get together and try to
control the price of what they are marketing. It is illegal in the U.S., but, not in other countries.
·
It is called COLLUSION: When companies work together to control prices.
COLLUSION IS ILLEGAL IN THE UNITED STATES.
EXAMPLE OF A CARTEL: OPEC- Organization of Petroleum
Exporting Countries
5 original members of OPEC: Saudi Arabia, Iran, Iraq,
Kuwait, Venezuela, 1973 OPEC Cut us off from
oil.
Ø OPEC Oil Embargo in 1973- In 1973, there was a war
fought between Israel and Egypt. We
supported Israel and gave 2 billion dollars to them to help with the war. Egypt got angry with us and cut off our oil
supply. The U.S. limited people’s supply of gas. People could only buy gas
every other day and only $10 worth of gas at a time.
TYPES OF MONOPOLIES
1.
Natural
Monopoly
·
You can make and sell the product
cheaper than anyone else (maybe they have control of the raw materials or
better technology
2.
Geographic
Monopoly
·
You have the best location.
Example: If you are boating at
Pickwick and run out of gas, there is only one gas station there to get more
3.
Technological
Monopoly
·
You invented it! You apply for a PATENT…that
is the license from the government that you are the only one who can produce
that object.
4.
Government
Monopoly
·
When the government will not allow
anyone to start a business in that field. In the 1960’s and 1970’s NASA (National
Aeronautics and Space Administration) was the only organization that the
government would let put a satellite in space. Now there are more options.
MLGW: is a combo between Natural and
Geographic
2.
OLIGOPOLY
An industry in which a few
suppliers exercise some control over price.
EXAMPLES: Gas Companies, Airlines,
Soft Drink Industry (Coke, Pepsi)
Characteristics of an
Oligopoly
1.
Domination by a few sellers (Few airlines)
2.
Barriers to entry (Southwest does not fly out of Memphis, not
enough gates in the airport) Start up costs
3.
Identical or slightly different
products (all fly round trip flights)
4. Non
price competition (upgrades: coach to 1st
class, flight movies, non-stop vs. layovers, & business man specials)
·
Product
Differentiation: Non-priced competition
5.
Limited control over price
ADVERTISING:
Informative:
The company will tell you about their product
Comparative:
When a company takes their product and compares it to others.
Sherman Anti Trust Act (1890)
Makes
it illegal for monopolies to exist
Price War: Sellers
aggressively undercut each other’s prices in an attempt to gain market share.
Deregulation: Government
removes all rules and restrictions placed on an industry
·
When a company is Deregulation, then they
can charge whatever cost they want.
MERGERS: (FROM
CH 7)
HORIZONTAL MERGER (Think Equal)
Merger between
companies at the same level (competing companies)
Example: ATT&T & T-Moble, Exxon
merged with Mobile, BP and Shell, Taco Bell and KFC
VERTICAL MERGER (Different levels)
Companies that sell to each other. People are at
different levels.
Examples: KFC could merge with Tyson
CONGLOMERATE MERGER (Nothing in common)
Merger between companies that have nothing in
common
Examples: Walt-Disney OWNS Movies, ABC, ESPN,
Maybelline & Purina Dog Food
Federal
Agencies that Government Agencies
ICC: Interstate Commerce (Trade)
Commission 1887
· Created to
monitor boat and train trade
· Today they
mostly monitor the trucking industry
FTC: Federal Trade Commission 1914
· Investigates
businesses and warranties
· Covers
Fraud and advertising
FDA: Food and Drug Administration 1927
· Investigates
the purity food, legal drugs, and cosmetics (makeup)
· Approves a new medicine (legal drugs) before the public can buy
it and use it
· Ensures that cosmetics are safe for the public to use
FCC: Federal Communications Commission
1934
· Monitors
TV, Radio
· Monitors television broadcasts and radio
· They are concerned about keeping radio broad casts from being
too vulgar
· They also don’t want bad language and nudity on television
SEC: Securities and Exchange
Commission 1934
· Monitor the stock Market
· Investigates insider stock trading / illegal stock trades
EEOC: Equal Employment Opportunity
Commission 1964
· Investigates
discrimination in the work place in hiring practices
o
For Race, Sex, Religion, National Origin,
Your Age, Sexual Orientation
· Would
watch for discrimination: such as companies only hiring men
OSHA: Occupational Safety and Health
Administration 1970
· Monitors
safety in the work place (work place safety)
· Would
be concerned if your job had exposed (shown) wiring that could electrocute you
NRC: Nuclear Regulatory Commission
· Monitor
the building of Nuclear Power Plants and the disposal of Nuclear Waste
NASA
National Aeronautics and Space Administration
Non-Price Competition: In
Oligopoly, the airlines will do things other than price to get your business
such as Product differentiation
Laissez Faire: The
government will not be involved in your business. They would practice deregulation,
taking restrictions off of the industry.
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