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Market Structures

Types of Markets-How do firms sell their products?. Market Structures. Characteristics of a PC Market Very large #s Standardized product (agriculture) “Price Takers ” market sets price (person selling has no control over price) Free entry and exit

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Market Structures

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  1. Types of Markets-How do firms sell their products? Market Structures

  2. Characteristics of a PC Market • Very large #s • Standardized product (agriculture) • “Price Takers” • market sets price (person selling has no control over price) • Free entry and exit • start up costs/technologies are such that anyone can freely enter the market Perfect (pure) Competition-All Kinds of Fun and Excitement

  3. Single seller • No close subs • “Price Maker” • High barriers to entry-restricted by technology, patents, cash outlays (amt $ to start company) The Pure Monopoly-Fun and Excitement Single Firm-Industry

  4. Economies of Scale-cost of entering industry & size of those in the industry discourage others from entering • Patents and licenses-legal barriers keep others from entering • Ownership of resources-DeBeers Diamond company markets 70% of all diamonds in world • Pricing-lowering prices to drive out competition Barrier to Entry

  5. Large # sellers • Small market share • No collusion • Independent action • Differentiated products-quality, style, service, brand name • Easy entry/exit-limited barriers to entry, non-price competition-advertising to make price less of factor in decision-making Monopolistic Competition-Fun and Excitement of Imperfect Competition

  6. Product differentiation • Idea that we view products as being different • Can be based on quality, style, branding • Can lead to poor choices (price=quality) • Product development-new products are developed which increases differentiation • Advertising- • firms must balance price, product, and costs of developing demand to maximize profit Non-price Competition

  7. Products can be similar or differentiated • Key is market share and price control • Profits of firm not only depend on its own price, but also on price of competitor • High barriers to entry-oil industry operates as world wide cartel Oligopoly

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