Chapter 7

Market Structures

Pure Competition

Profit Maximization
Small businesses do not influence price
Supply and Demand determine price.
Price Taker

5 conditions for Pure Competition:

1.
2.
3.
4.
5.

Large # of Buyers and Sellers

Identical Products
Buyers and Sellers act independently
Well Informed Buyers and Sellers
Buyers and Sellers are free to enter in, conduct, or get out
of, business

Pure competition is theoretical because:

Preferred Brands: nothing is identical

Monopolistic Competition

Product Differentiation
Similar but not identical
Designer Clothing or Sporting Equipment

Non-Price Competition
Advertising and marketing

Oligopoly

Few large companies dominate!

Ex. Coke and Pepsi
Interdependant behavior
Collusion(formal illegal agreement)
Price-fixing(informal)
Price Wars

Monopoly

Only one Supplier

What is one example of a Monopoly?

Four Types of Monopolies:

Natural (Phone Service)
Geographic (Location to small to support)
Technological (Patents=monopolies)
Governmental (water supply)

Anti-trust Legislation

1890 Sherman Act

1st law against Monopolies

1914 Clayton Act

greater Govt control over price
discrimination

1914 Federal Trade Commission Act

Reinforced Clayton act (cease and desist)

1936 Robinson-Patman Act

Strengthen Clayton; discount everyone!

Government Regulation

Federal Regulatory Agencies

i.e. SEC(securities exchange commission)
i.e. OSHA (Occupational Safety)
i.e. FAA (Air Travel)

Public Disclosure
Annual Reports for Companies
Ingredients

Price Setting
Price Floors (minimum wage)
Price Ceilings (rent control)

Government Agency Research

Agency
Food and Drug
Administration
Federal Trade
Commission
Federal
Communications
Commission
Equal Employment
Opportunity
Commission
Environmental
Protection Agency

Tasks

Impact on
Marketplace