Clarifications

• 1. Stock Project 1st period only- basic chart• http://finance.yahoo.com/

• 2. Liability: legally bound obligation to pay debt— debts can ruin a sole proprietorship's business—sell car to pay loan

• 3.2nd period: pure competition—go over again

Market Structures

Price Leadership: 1 co. lowers price and others follow (Southwest Airlines)—exists in oligopolies

Price Collusion: companies get together set prices—hard to prove (ex: airline company and FBI tapes)

Price fixing: agreement among firms to sell at the same or similar prices—result of price collusion

Pure/Perfect Competition• A large number of firms all producing

(essentially) the same product

• Sell same product at the same price-identical product

• Farming, some agricultural produce, stock market

• No price setting power and no non-price competition

• 4 requirements: – Many buyers and sellers– Identical products – well informed about products– Sellers can enter and exit market freely

Imperfect Competition

Factors make it difficult for new firms to enter market = barriers to entry

Leads to imperfect competition

Product Differentiation Emphasis on subtle differences between

competing products Profit from the differences

Features of package or productConvenience Aspirin or Bayer

Non-Price Competition (advertising): Physical characteristics: new size, color, bottle shapeLocation- where they are soldService Level: higher level of serviceAdvertising: create apparent differences

Monopolistic Competition

sell products that are similar but not identical- (Aisles at grocery store)

More difficult to enter market Some price setting power (name brand loyalty) Non-price competition exists

Sodas, grocery products, bottled H2O, dry cleaners, shampoo/conditioner, burger joints

4 requirements:Many firms/sellersFew artificial barriersSlight control over priceDifferentiated products

Monopoly

barriers prevent firms from entering market that has one single supplier

1 seller and any number of buyers (same price)

Unique productImpossible to enter market Total price setting power

– ATT/ electricity co’s or utilities/ MUD districts/ Center Point energy/Bill Gates/cable

4 types of Monopolies

Technical: new technology develops Natural: natural gas, electricity, MUD,

Center Point, cable, Government: created by government Geographic: Location

Price discrimination: sell a product to groups of consumers for different prices

Oligopoly

3-5 firms dominate industry Identical and different productsVery difficult to enter market—need lots of

moneyPrices are interdependentNon-Price competition exists

Big 3 auto makers, Beer, cigarettes, sodas, cereal, TXU, Reliant, Direct electricity, Center Point, television service providers (ATT, direct)

Terms

Patent: government issues a patent to a company giving exclusive rights to sell a new good or service (for a specific period of time)

Price war: when competitors cut prices very low to win business—harmful to producers but good for consumers

Cartels: illegal in US– producers coordinate prices and production