Market Structures
Objectives
• Describe the four conditions that are
in place in a perfectly competitive
market
• List two common barriers that
prevent firms from entering a market
• Describe prices and output in a
perfectly competitive market
Perfect Competition
• Perfect competition-
a market structure in
which a large
number of firms all
produce the same
product
• Aka pure
competition
Pure Competition Defined
1. The Market is in Equilibrium
2. Firms sell same product at same price
3. Each firm produces small quantity compared
to total supply
4. No single firm can influence price
5. Only decision is on quantity produced given
production costs and market price
1. Many buyers and Four Conditions
sellers participate in the
market
2. Sellers offer identical
products
3. Buyers and sellers are
well informed about
products
4. Sellers are able to
enter and exit the market
freely
Commodity- A product Vocabulary
that is the same no matter
who produces it, such as
petroleum, notebook
paper, or milk.
Barrier to entry-any factor
that makes it difficult for a
new firm to enter a market
Start-up-costs- the
expenses a firm must pay
before it can begin to
produce goods
Price, Output, Purely Competitive Markets
1. Efficiency: all inputs - factors
of production used to best
advantage
2. Prices: correctly represent
the opportunity cost & are
the lowest possible due to
competition
3. Output: will be set to cover
costs and a minimal
acceptable profit
Not very desirable for
owners / producers
Review
• Describe characteristics and give
examples of perfect competition
• How do start-up costs discourage
entrepreneurs from entering a
market
• Why must perfectly competitive
markets always deal in
commodities
Monopoly
Objectives
1. Describe characteristics and give
examples of monopoly
2. Describe how monopolies are
formed, including government
monopolies
3. Explain how a firm with a monopoly
sets output and price, and why
companies practice price
discrimination
Monopoly
1. A market dominated by a single seller
2. Barriers to entry are the principal
condition that allows monopolies to exist
3. Supplying a unique product
Vertical Integration-
aligning all aspects of production
Horizontal integration-
merging similar companies
Economies of Scale
• Economies of scale- factors
that cause a producer’s
average cost per unit to fall
as output rises.
• as output increases from
zero the average cost of
each good drops
• the curve slopes downward
• economies of scale will
never see a rise in cost per
unit if they remain efficient.
• (Coal Plant)
• (Green Energy)
• (Solar/wind/Hydroelectric)
Natural Monopoly
A market that runs most
efficiently when one large firm
supplies all of the output
• EX: Electricity, Public Water,
Sewage, Waste mgmt
• Inefficient for each competitor
to build their own network of
pipes/lines/roads
• Multiple networks doesn't = max
efficiency
• In exchange for letting one firm
run the service Gov’t is given
power to control prices
Technology and Change
● Tech has power to
destroy natural
monopolies
● by lowering costs small
companies can
become as efficient as
large
● Wireless Technology
● Bluetooth
● Cellphones
● Internet
● Apple Pay/venmo
Government Monopolies
A monopoly created by the
government
Govt places barriers to entry
1. Patent:
A license that gives the inventor of
a new product the exclusive right 3. License:
to sell it for a certain period of Grants firms the right to
time. operate businesses
especially when scarce
2. Franchise:
resources are at play
The right to sell a good service EX: Land, Radio,Television
within an exclusive market. frequencies, facility
Gift shop at national point of maintenance.
interest
Output Decisions
Must choose between
OUTPUT or PRICE
(not both)
Typically the Monopolist will
choose to produce fewer
goods at a higher price
Monopolist’s Dilemma
If a Monopolist produces more
of a good the price will fall and
if they produce less the price
will rise
Falling Marginal Revenue
To maximize profit Difference between competitive
market and monopoly is
1. Set marginal revenue aka 1. In purely competitive market,
amount earned per unit
marginal revenue is always
equal to the extra cost
from producing that unit same as price
2. Each firm receives same price
per unit regardless of output
2. This also applies to a
monopoly
This is not always true in a
monopoly
Profits
Profit is determined by comparing price and average cost
AKA
The difference between the market price and average cost
at that level of production
Price Discrimination
• Price Discrimination-
The division of
customers into groups
based on how much
they will pay for a good
• Market Power- the
ability of a company to
change prices and
output like a
monopolist
Targeted Discounts
•Airline fares
•Manufacturers
Rebates
•Student / senior
discounts
•Children fly,
stay, eat free
Limits of Price Discrimination
• Some market power-control
over prices-rare in
competitive markets
• Distinct customer
groups-divide customers
into groups based on their
sensitivity to price
• Difficult resale
restaurant/theme parks
Consumables
Review
• What can a firm with market power do?
• Why does government usually approve of natural monopolies?
• What are three different forms of price discrimination?
• Define the term economies of scale in your own words?
• Identify Cause and Effect How can technology affect a monopoly?
• Categorize What government actions can lead to the creation of
monopolies?
• Determine central ideas what is the most profitable level of
output for a monopolist?
• Draw conclusions Why do monopolists practice price
• discrimination?
• determine central ideas how does price discrimination benefit
producers and consumers?
Monopolistic Competition and Oligopoly
I Can Objectives
● I can describe characteristics and give examples
of Monopolistic Competition
●
● Students will explain how firms compete without
lowering prices
●
● Students understand how firms in a
monopolistically competitive market set output
●
● I can describe characteristics and give examples
of Oligopoly
TICKETS
4 Sale
$11
Monopolistic Competition
Defined: Many companies
compete in an open market
to sell products that are
similar but not identical
each firm has monopoly over
its own particular design or
product
This is the modified version of
Pure competition
EX:
Organic vs regular produce
Four Conditions of Monopolistic Competition
• Many firms
• Few artificial barriers
• Little control over price
• Differentiated products
Everything owned by Nestle
This is list consists of
everything one Company
owns
1. Many Firms
1. Not marked by
economies of
scale
2. Start up costs are
relatively low
3. New firms can
spring up quickly
after small initial
investment
2. Few Artificial Barriers
1. Barriers to enter the
market are relatively
low
2. Patents do not provide
protection from
competition
• expired
• slight differences
3. Producers cannot work
together to keep out new
competition
3. Limited Control over price
1. Goods produced are
similar to competitors
2. Raising prices too
much will drive
consumers into your
competitors market
B/C
3. Substitutes are readily
available
Differentiated Products
1. firms have control
over selling price b/c
they can distinguish
their goods apart from
other products.
2. Differentiation allows
sellers to profit from
differences between
competitors and
themselves
Non-price Competition
a marketing strategy "in which one firm tries to
distinguish its product or service from competing
products on the basis of attributes like design and
workmanship"
• Physical Characteristics
•
• Location
•
• Service level
•
• Advertising
1. Physical Characteristics
New
Size
Color
Shape
Taste
Car models that match
personality
2. Location
Location can make or
break a business. This
is a major factor in
non price competition
3. Service level
People will pay a premium for great service and atmosphere
4. Advertising
Image or status is everything
Prices, Output, and Profits
PRICES: Higher than in pure competition but…
• The availability of many substitutes prevents these
firms from raising prices too high
• Monopolistically competitive firms face more elastic
demand curves than true monopolies
Prices, Output, and Profits
OUTPUT:
• Higher prices than pure competition but lower than
Monopoly.
• This puts output somewhere between monopoly and
pure competition
Prices, Output, and Profits
PROFITS:
• Profits typically just enough to cover costs.
2 Reasons
1. Fierce competition encourages rivals to differentiate their
products or services.
2. New firms enter the market with lower cost substitutes
that force down price.
Characteristics of Oligopoly
• Market Dominated by a few,
large, profitable firms.
• 4 largest firms need to
produce at least 70%-80% of
the output
• Acting alone or as a team
oligopoly will tend to set price
high and output low
Barriers to Entry
• Technologys
• Licenses
• Patents
• Reality of the Markets
• Expensive Machinery
• Large Production Facilities
• Greater economies of scale leads to
fewer firms in an industry
Cooperation and Collusion
Oligopoly Presents a BIG Challenge to Gov’t
Firms can appear to work together
Collude together to set prices
and limit competition can be as
damaging to consumers as a
monopoly
3 Practices That Concern Gov’t
1. Price leadership: A firm can either raise or lower
prices.
Trigger a response from competitors.
Price War: Firms fighting for consumers $
• Harmful for producers
• Good for consumers because prices creep lower
3 Practices That Concern Gov’t
2. Collusion: agreement among
members of an oligopoly to illegally
set prices and output.
Price Fixing : an agreement to to
sell at similar prices.
collusive agreements set prices and
output at levels that would be
chosen by monopolists
this is illegal in the united states
however it is tempting despite risks
3 Practices That Concern Gov’t
OPEC most well known Cartel
3. Cartels: Stronger than collusive
agreement.
agreement by formal organization
of producers to coordinate prices
and production
Cartels can only survive if all
members keep to their agreement
if one member cheats and over
produces more product goes to
market and price falls
Top Media & Tech Conglomerates – Revenue & Market Influence (2023)
Company Revenue Approx. Media Market Influence / Share Key Subsidiaries / Divisions
(2023)
Alphabet Inc. $307.4B ~29% of digital ad market (U.S.) Google, YouTube, Google Cloud
Meta Platforms $134.9B ~24% of digital ad market (U.S.) Facebook, Instagram, WhatsApp, Oculus
Amazon $574.8B ~12% of U.S. digital video Prime Video, Twitch, Audible
streaming / ad
Microsoft $211.9B ~7% of gaming / streaming media LinkedIn, Xbox, GitHub, Teams
ByteDance $112B ~8% of U.S. social media / video TikTok, Douyin, CapCut, news apps
sharing
Netflix $33.7B ~15% of U.S. streaming Netflix Studios, International divisions
subscribers
Comcast $121.6B 20.6% of U.S. media market NBCUniversal, Sky, Xfinity
Walt Disney $88.9B 18.2% of U.S. media market Pixar, Marvel, Lucasfilm, ABC, ESPN, Disney+
Warner Bros. Discovery $44.2B 11.5% of U.S. media market HBO, CNN, Discovery Channels, Warner Bros., DC
Paramount Global $30.5B 8.4% of U.S. media market CBS, Paramount Pictures, MTV, Nickelodeon, Showtime,
Paramount+
Fox Corporation $14.9B 6.2% of U.S. media market Fox News, Fox Sports, Fox Entertainment, Tubi, Fox One
Publicis Groupe $14.3B N/A (ad & PR influence globally) Saatchi & Saatchi, Leo Burnett, media planning agencies
Top Media Conglomerates – Revenue & U.S. Market Share (2023)
Company 2023 U.S. Market Key Subsidiaries / Divisions
Revenue Share
Comcast $121.6B 20.6% NBCUniversal (TV, film, theme parks), Sky (European
Corporation
TV/streaming), Xfinity (cable/broadband)
Walt Disney $88.9B 18.2% Pixar, Marvel, Lucasfilm, 20th Century Studios, ABC, ESPN,
Company
Disney+
Warner Bros. $44.2B 11.5% HBO, CNN, Discovery Channels, Warner Bros. Pictures, DC
Discovery
Entertainment
Paramount Global $30.5B 8.4% CBS, Paramount Pictures, MTV, Nickelodeon, Showtime,
Paramount+
Fox Corporation $14.9B 6.2% Fox News, Fox Sports, Fox Entertainment, Tubi, Fox One
Publicis Groupe $14.3B N/A Saatchi & Saatchi, Leo Burnett, media planning agencies
WPP plc $15.1B N/A Ogilvy, Grey, GroupM, various ad & PR agencies
Express Ideas Clearly
Why is it relatively easy for firms to enter and leave a
monopolistically competitive market
Identify Supporting Details
What role does advertising play for monopolistically
competitive firms
Identify Steps in a Process
What keeps monopolistically competitive firms from making
high profits?
Identify Cause and Effect
Name three barriers to entry in a market that can lead to
the formation of an oligopoly
Distinguish
What power does a market leader in an oligopoly have
Helpful Videos
Introduction to Perfect Competition
[Link]
NLd8Z
What is a Monopoly?
[Link]
Monopolistic Competition
[Link]
Introduction to Oligopoly
[Link]