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Lecture 11

ECON 2023 Lecture Notes - Marginal Revenue, Demand Curve, Market Power
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4 Pages
70 Views
Fall 2016

Department
Economics
Course Code
ECON 2023
Professor
Jeff Cooperstein
Lecture
11

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4 Basic Models of Market Structure
understand how price & output= determined in product markets in economy
evaluate efficiency/ inefficiency of markets
provide critical background for assessing public policies relating certain firms & industries
4 Market Models
Differ i…
o # of firms in the industry
o Standardized products/ Differentiated products
o How easy/ difficult to enter the industry
1: Pure Competition
o Very large # of firms producing standardized product
o Enter/ Exit= very easy
o E.g.) Cotton
2: Pure Monopoly
o 1 firm= sole seller of product/ service
o Produce single unique product (product differentiation= NOT an issue)
o Entry of additional firms= blocked
o E.g.) local electric utility
3: Monopolistic Competition
o Relatively large # of sellers producing differentiated products
o Non-price competition: Selling strategies distinguish
= product differentiation
Design, workmanship etc.
o Enter/ Exit=quite easy
o E.g.) clothing, furniture, books
4: Oligopoly
o A few sellers of standardizes/ differentiated product
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Description
4 Basic Models of Market Structure • understand how price & output= determined in product markets in economy • evaluate efficiency/ inefficiency of markets • provide critical background for assessing public policies relating certain firms & industries • 4 Market Models • Differ in… o # of firms in the industry o Standardized products/ Differentiated products o How easy/ difficult to enter the industry • 1: Pure Competition o Very large # of firms producing standardized product o Enter/ Exit= very easy o E.g.) Cotton • 2: Pure Monopoly o 1 firm= sole seller of product/ service o Produce single unique product (product differentiation= NOT an issue) o Entry of additional firms= blocked o E.g.) local electric utility • 3: Monopolistic Competition o Relatively large # of sellers producing differentiated products o Non-price competition: Selling strategies distinguish ▪ = “product differentiation” ▪ Design, workmanship etc. o Enter/ Exit=quite easy o E.g.) clothing, furniture, books • 4: Oligopoly o A few sellers of standardizes/ differentiated product o Decisions= affect to rivals o Must take rivals’ decisions into account in determining own price & output Market Model Characteristics Pure Competition Monopolistic Oligopoly Monopoly Competition # of firms Very large Many Few 1 Type of product Standardized Differentiated Standardizes/ Differentiat- Unique ed (no close substitutes) Control over price None Some (but with- Limited by mutual interde- Considerable in rather nar- pendence (considerate w. row limits) collusion) Conditions of en- Very easy Relatively easy Significant obstacles Blocked try No obstacles Non-price Compe- None Considerable Typically great deal, particMostly public relations tition emphasis on ularly w. produc
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