Lecture Notes: Market Structures

Announcements

• Office Hours: Check schedule for this week's availability.
• Chapters: Moving into Chapters 12 and 13.
• In-Class Assessment: Taking place on Canvas today.
• Lab: Scheduled for Thursday and Friday. Lab 7 is due at the beginning of the lab.
• Tutoring: Available this week.
• Grades: Please double-check your grades.

Introduction to Market Structures

• Current Focus: Market structures, especially perfect competition and monopoly.
• Market Assumptions: Previously assumed perfect competition.

Types of Market Structures

1. Perfect Competition

   • Firms are price takers.
   • Large number of firms with no market power.
   • Example: Grain markets in developing countries.

2. Monopoly

   • Market with one firm; price maker.
   • High barriers to entry and lack of competition.
   • Historical Examples: Standard Oil, AT&T.

3. Oligopoly

   • Small number of large firms dominate the market.
   • Examples: Software companies (Intel, Microsoft), car industry, airline industry.

4. Monopolistic Competition

   • Large number of producers with no direct influence on prices.
   • Examples: Craft beer, microbreweries, some consumer goods.

Market Power

• Definition: Ability to influence market price directly or indirectly.
• Market Power Continuum: Perfect competition (least market power) to monopoly (most market power).

Perfect Competition

• Characteristics:
  • Large number of buyers and sellers.
  • Homogeneous products.
  • Freedom of entry and exit.
  • Perfect information.
• Efficiency: Firms produce at the lowest cost; consumers pay lowest prices.

Monopoly

• Characteristics:
  • Single firm controls the market.
  • High barriers to entry and no close substitutes.
• Price Maker: Can influence prices, but still subject to consumer demand.
• Reasons for Existence:
  • Large fixed costs (natural monopolies).
  • Locational advantages.
  • Patents and government franchises.
  • Network externalities.
  • Control of key resources.

Key Comparisons

• Perfect Competition vs. Monopoly:
  • Number of producers, substitutes available, barriers to entry, and information availability differ significantly.

Activities

• Canvas Exercise: Identify examples of agricultural markets as oligopolies or monopolistic competition.
• Discussion: Examples and characteristics of firms in different market structures.

Conclusion

• Next Class: Focus on monopolies.
• Guest Lecturer: Next lecture will be conducted by a guest lecturer.

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Note: Always remember to log into Canvas and engage in the exercises and discussions to reinforce learning.