ECON 208 Chapter Notes -Monopolistic Competition, Productive Efficiency, Allocative Efficiency

24 views4 pages
23 Mar 2012
Adrienne Pacini ECON 208 WEEK: October 27, 2009
Chapter 11
The Structure of the Canadian Economy
Industries with Many Small Firms
- The majority of industries in Canada are made up of firms that are small relative to the size
of the market in which they sell
- Individual firms are price takers and produce more-or-less the same product
- No barriers to entry or exit
- Each store has a unique location that may give it local market power
Industries With a Few Large Firms
- Industries dominated by either a single firm or a few large ones
- Oligopoly structure
- Firms engage in competitive behaviour and produce a range of products that are
differentiated form each other and from the products of other large firms
- Most modern industries that are dominated by large firms contain several firms
- Examples: Ford, Toyota, and General Motors
Industrial Concentration
- Concentration ratio: the fraction of total market sales controlled by a specified number of
the industry’s largest firms
o Often used as an indicator of market power
- Defining the market: the main problem associated with using concentration ratios is to
define the market with reasonable accuracy
o This process is difficult
What range of products should be included?
What is the relevant geographical area?
Imperfect Competition
Firms Choose Their Products
- Differentiated product: a group of commodities that are similar enough to be called the
same product but dissimilar enough that all of them do not have to be sold at the same
o Most firms in imperfectly competitive markets sell differentiated products
o The firm itself must choose which characteristics to give the products that it will sell
Firms Choose Their Prices
- Administered price: a price set by the conscious decision of the seller rather than by
impersonal market forces
- Price setter: a firm that faces a downward-sloping demand curve for its product
o It chooses which price to set
- Other than in perfect competition, firms set their prices and then let the demand determine
the sales
Non-Price Competition
- Firms can increase their market share by using non-price competition
o Advertising
o Differences in quality of products and/or level of customer service
o Create entry barriers to protect current pure profits
Unlock document

This preview shows page 1 of the document.
Unlock all 4 pages and 3 million more documents.

Already have an account? Log in

Get OneClass Notes+

Unlimited access to class notes and textbook notes.

YearlyBest Value
75% OFF
$8 USD/m
$30 USD/m
You will be charged $96 USD upfront and auto renewed at the end of each cycle. You may cancel anytime under Payment Settings. For more information, see our Terms and Privacy.
Payments are encrypted using 256-bit SSL. Powered by Stripe.