I. Perfect competition – buyers/sellers fully compete under the laws
of supply and demand
A. Characteristics
1. many buyers and sellers
2. sellers offer identical
products
3. buyers are well informed
about products
4. sellers can enter/exit
market easily
*best example: farming
II. Monopolistic competition – differs from perfect comp. in one area:
sellers offer different products
A. sellers differentiate their products
B. nonprice competition (give-aways, name brands)
C. example: jeans market
III. Oligopolies – a few sellers control the market
A. sellers offer identical or similar products
B. entry to the market is difficult (barriers to
entry)
C. When is an industry an oligopoly?
1. 3 or 4 sellers control
at least 70% of the market
2. US car industry = “Big
3” account for 90%
D. product differentiation and nonprice competition
IV. Monpolies – a single seller controls all production
A. no close substitutes for product
B. other sellers cannot enter market
1. “barriers to entry”
a. legal
1. patents
2. copyrights
b. extremely low costs
c. ownership of scarce resource
C. Types of Monopolies
1. Natural – competition
isn’t practical b/c of high costs (utilities, cable); regulate by govt.
2. Technological – result
of patents
3. Geographical – result
of location
4. Govt. – only govt. provides
service
V. How monopolies may form
A. Merger – two or more companies join
B. Trust – several companies remain separate, but
are directed by 1 Board of Directors
1. work together rather
than compete
VI. Regulation
A. Sherman Antitrust Act (1890)
1. outlawed monopolies and
trusts
2. very vague and hard to
enforce
B. Clayton Antitrust Act (1914)
1. listed specific activities
as illegal
2. Congress created the
Federal Trade Commission (FTC) to investigate monopolies