monopoly_Presentation - Monopoly Four Basic Market...

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Unformatted text preview: Monopoly Four Basic Market Structures Perfectly Competitive : many firms, identical products, free entry and exit, full and symmetric info Monopoly : single firm, no close substitutes, barriers to entry, full and symmetric info Oligopoly : several firms, similar products, degree of product differentiation varies depending upon the market, might be barriers, full and symmetric info Monopolistic competition : many firms, similar products, slightly differentiated products, free entry and exit, full and symmetric info Competitive Market This is the classic textbook market structure. Firms in a competitive market all make a product that is perfectly substitutable: all demanders are equally satisfied with any suppliers product. Monopoly The single seller makes a product that has no good substitute. Other firms may be able to produce the good or service but choose not to enter the market or are barred from it. Oligopoly A few sellers make products that are good, but not perfect, substitutes. Consumers can be induced to change suppliers but have only a limited number of choices. Monopolistic Competition The market has many firms but each suppliers product is differentiated. Consumers can be induced to change brands but they have brand preferences. Question What is the market structure for each of these products or firms: competitive, monopoly, oligopoly, monopolistic competition? The Campus Store Kinkos Pepperidge Farms Whole Wheat Bread PowerMac computer Windows computer NYSEG (electricity utility) Morton salt AT&T long distance Answer The Campus Store: most products competitive, textbooks oligopoly, but location is very important. Kinkos: monopolistic competition (differentiated service) Pepperidge Farms Whole Wheat Bread: competition or monopolistic competition (slightly differentiated recipes) PowerMac computer and clones: monopoly, under license. Windows computer: monopolistic competition (differentiated features) NYSEG (electricity utility): monopoly Morton salt: competitive AT&T long distance: oligopoly Monopoly single firm no close substitutes barriers to entry full and symmetric information 10 Sources of Monopoly Entry Barriers Natural monopoly: the most efficient scale of production is so large, relative to market demand, that a single firm dominates the market. Patents, copyrights, licenses, franchises: government protection of a firms right to produce a unique product. Economic and/or legal restrictions, strategies or situations that make entry more difficult for new competitors than for the existing monopoly firm. 11 Natural Monopolies Goods and services whose delivery requires the construction of a physical network (wires, pipes, etc..) In such industries (local phone service, water, sewage removal, electricity, gas) the physical networks display decreasing marginal cost over...
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monopoly_Presentation - Monopoly Four Basic Market...

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