Lecture 3: Introduction to Chapter 2

Key Topics

• Law of Demand and Supply
• Market Models
  • Perfect Competition
  • Imperfect Competition
    • Monopolistic Competition
    • Oligopolies
    • Monopolies

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Introduction

• Begin with key terms related to the law of demand and supply.
• Focus on different types of market models and their characteristics.
• Importance of decisions in marketing for both sellers and buyers.

Market Definition

• Market: All possible buyers and sellers of a product.
• Consumers: Final buyers who buy to consume, not to resell.
• Industry: Set of competing firms (e.g., livestock industry).

Market Models

Perfect Competition

• Characteristics:
  • Many small firms, none of which can influence the market price.
  • Homogeneous products.
  • Easy market entry and exit.
  • Large number of buyers and sellers.
  • Firms are price takers.
• Consequences:
  • Horizontal demand curve.
  • Main decision: how much to produce.
  • Focus on cost-based competition.

Imperfect Competition

• An umbrella term including monopolistic competition, oligopolies, and monopolies.

Monopolistic Competition

• Characteristics:
  • Many firms, differentiated products.
  • Easy entry with relatively high capital costs.
  • Relatively elastic demand curve due to substitutes.
• Strategies:
  • Differentiation through packaging, branding, and quality.
  • Influence on price through brand loyalty.

Oligopoly

• Characteristics:
  • Few large firms dominate the market.
  • Non-price rivalry and product differentiation.
  • Substantial barriers to entry.
  • Hierarchy of leaders with a price leader.
• Oligopsony: Few firms on the buying side.

Monopoly

• Characteristics:
  • Single seller (monopoly) or buyer (monopsony).
  • Sole source of raw material, patents, economies of scale, or government action.
  • Barriers include patents, economies of scale, and government-created monopolies.
• Examples: USPS, technological monopolies like NFL, geographic monopolies like isolated gas stations.

Comparing Market Models

• Perfect Competition: Homogeneous goods, many buyers/sellers, easy entry/exit.
• Monopolistic Competition: Differentiated goods, many buyers/sellers, brand focus.
• Oligopoly: Few firms, difficult entry, possible brand differentiation.
• Monopoly: One firm, impossible entry, price based on marginal cost=revenue.

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Conclusion

• Discussion on the importance and various characteristics of market models.
• Next lecture will continue with remaining slides of Chapter 2.