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Types of Markets

Types of Markets. How do firms sell their products?. Perfect Competition. All kinds of fun and excitement. Characteristics of a PC Market. Very large numbers Both buyers and sellers, so that no one has control Standardized product

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Types of Markets

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

  2. Perfect Competition All kinds of fun and excitement

  3. Characteristics of a PC Market • Very large numbers • Both buyers and sellers, so that no one has control • Standardized product • Products must be identical so that no one will pay more for what they perceive to be better quality • “Price takers” • Producers have no control over the price in the market • Free entry and exit • Start up costs and technologies are such that anyone can freely enter the market

  4. The Pure Monopoly The fun and excitement of a single firm in the industry!!!!

  5. Characteristics of the Monopoly Market • Single seller • No close substitutes • With marketable substitutes the monopoly would not retain price control • “Price maker” • As opposed to the PC firms price taking • High barriers to entry • Entry is restricted by technology, patents, or cash outlays • Non-price competition • Generally none, only to influence demand

  6. Barriers to Entry • Economies of Scale • The cost of entering an industry and size of those in the industry dissuade others from entering • Patents and Licenses • Legal barriers keep other firms from entering • Ownership of Resources • DeBeers Diamond company markets about 70% of all diamonds in the world • Pricing • Lowering prices to drive out competition

  7. Monopolistic Competition and Oligopoly The Fun and Excitement of imperfect competition

  8. Monopolistic Competition • Large # of Sellers • Small market share • No collusion • Independent action • Differentiated Products • Quality/Styling • Service • Brand Name • Easy Entry and Exit • Limited barriers to entry • Non-price Competition • Advertising to make price less of a factor in decision making

  9. Non Price Competition • Product differentiation • The idea that we view products as being different • Can be based on quality, style, branding, etc • Can lead to poor choices, i.e. price=quality • Product development • This is the process by which new products are developed • This increases differentiation • Advertising • Firms must balance price, product, and costs of developing demand to maximize profit

  10. Oligopoly • Products can be homogenous or differentiated • An oligopoly market can be either type of product, the key is market share and price control • Firms do retain price control, but they are dependent upon one another • The profits of the firm not only depend on its own price, but also on the price of it’s competitor • High barriers to entry

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