market structure business firm organization and competition
TRANSCRIPT
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Competition, Market Structure and
Business Firm Organization
In the American Economy, we are primarily a
Market System, but we do not have a puremarket.
Since our market system is not pure, we know it
is a mixed system. The mix includes aspects ofthe Command system.
The term Market Structure refers to thesedifferent mixed versions of the market. The
markets for different classes of products behavedifferently, so there is a broad range of possible
market organization.
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Market Structure
We rank different market structures
according to the degree of competition
present.
The least competitive structures are the
different forms of monopoly.
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Market Structure
Pure Monopoly is the most restrictive form.
There are four requirements for a Pure Monopoly.
1. One seller
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Market Structure
Pure Monopoly is the most restrictive form.
There are four requirements for a Pure Monopoly.
1. One seller
2. Good with no close substitute
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Market Structure
Pure Monopoly is the most restrictive form.
There are four requirements for a Pure Monopoly.
1. One seller
2. Good with no close substitute
3. Seller controls the supply
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Market Structure
Pure Monopoly is the most restrictive form.
There are four requirements for a Pure Monopoly.
1. One seller
2. Good with no close substitute
3. Seller controls the supply
4. Seller controls the price
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Market Structure
Pure Monopoly is the most restrictive form.
There are four requirements for a Pure Monopoly.
1. One seller
2. Good with no close substitute
3. Seller controls the supply4. Seller controls the price
Pure Monopoly does not exist in the real world, butthere are different forms of monopolies that do
occur.
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Market Structure
Natural (regulated) monopoly- Businesses that would naturally tend to become a
monopoly if they were allowed to compete.
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Market Structure
Natural (regulated) monopoly-Businesses that would naturally tend to become a
monopoly if they were allowed to compete.
-Typically, these are utilities, airports, refineriesand other large, complicated firms with expensive
investments in infrastructure.
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Market Structure
Natural (regulated) monopoly
-Businesses that would naturally tend to become amonopoly if they were allowed to compete.
-Typically, these are utilities, airports, refineries
and other large, complicated firms with expensiveinvestments in infrastructure.
-To protect consumers, State and Federal
governments regulate the prices charged by thesefirms, in exchange for allowing them to operate as
monopolies.
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Market Structure
Natural (regulated) monopoly
Geographic (regional) monopoly
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Market Structure
Natural (regulated) monopoly
Geographic (regional) monopoly- A business that has a monopoly in a limited geographic
area.
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Market Structure
Natural (regulated) monopoly
Geographic (regional) monopoly-A business that has a monopoly in a limited geographic
area.
-Can be due to geography (on an island, in the mountains,
etc) or due to business arrangements (exclusive contracts,
distribution territories).
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Market Structure
Natural (regulated) monopoly
Geographic (regional) monopolyGovernment monopoly
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Market Structure
Natural (regulated) monopoly
Geographic (regional) monopolyGovernment monopoly
-A business that the government wishes to run without
competition.
-Legislation is passed forbidding competition.
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Market Structure
Natural (regulated) monopoly
Geographic (regional) monopolyGovernment monopoly
-A business that the government wishes to run without
competition.
-Legislation is passed forbidding competition.
-Examples include the US Post Office, Air Traffic Control,
Federal Reserve.
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Market Structure
Natural (regulated) monopoly
Geographic (regional) monopolyGovernment monopoly
Technological monopoly
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Market Structure
Natural (regulated) monopolyGeographic (regional) monopoly
Government monopoly
Technological monopoly-Monopolies granted by the government to protect the
rights of those who invent, create, compose, design or
otherwise contribute original work to be sold.
-- Technological monopolies take three forms, all issuedand controlled by the US government.
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Market Structure
Technological monopolies
1. Patents
A patent is government protection that gives the right toexclude others from making, using, offering for sale, or selling
the invention.
1) Utility patents may be granted to anyone who invents or discovers
any new and useful process, machine, article of manufacture, orcomposition of matter, or any new and useful improvement thereof;
2) Design patents may be granted to anyone who invents a new,original, and ornamental design for an article of manufacture; and
3) Plant patents may be granted to anyone who invents or discoversand asexually reproduces any distinct and new variety of plant.
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Market Structure
Technological monopolies
1. Patents Patents are issued by the US Patent and Trademark
Office. If the office determines that an invention is
sufficiently original and commercially viable, then it
issues a patent that confers the patent s to thatinvention for 20 years.
Once a patent is issued, the patentee must enforce the
patent without aid of the USPTO.
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Market StructureTechnological monopolies
1. Patents
2. Copyrights
-Copyrights are registered by the Copyright Office of the
Library of Congress.
- Copyright protection granted to creators of originalworks of authorship including literary, dramatic,
musical, artistic, and certain other intellectual works,
both published and unpublished.
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Market StructureTechnological monopolies
1. Patents
2. Copyrights-Copyrights are registered by the Copyright Office of the
Library of Congress.
- Copyright protection is granted to creators of originalworks of authorship including literary, dramatic,
musical, artistic, and certain other intellectual works,both published and unpublished.
- Copyright law generally gives the copyright owner theexclusive right to reproduce the copyrighted work, toprepare derivative works, to distribute copies, or to
perform or display the work in public.
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Market StructureTechnological monopolies
1. Patents
2. CopyrightsAuthor Owned Copyright
(since 1978) Life of creator plus 70 years.
Corporate (anonymous, pseudonymous, works made for hire)95 years from publication, or
120 years after creation, whichever is shorter
Prior to 1923Expired
Copyright can be renewed upon application and justification.
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Market Structure
Technological monopoly
1. Patents
2. Copyrights
3. Trademarks and Servicemarks-
Trademark is a word, name, symbol, or device that isused to identify the producer of the goods and to
distinguish them from the goods of others. Servicemark is the same as a trademark except that it
identifies and distinguishes the source of a servicerather than a product.
Registered with the US Patent and Trademark Office
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Market Structure
Technological monopoly
1. Patents2. Copyrights
3. Trademarks and Servicemarks-
Trademarks do not expire, but can be lost throughabandonment, dilution or common use.
Abandonment occurs if a trademark has not been
actively used for three years or more.
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Market Structure
Technological monopoly
1. Patents2. Copyrights
3. Trademarks and Servicemarks-
Trademarks do not expire, but can be lost throughabandonment, dilution or common use.
Dilution happens when competitors adopt very
similar trademarks and the owner takes no actionto defend their rights.
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Market Structure
Technological monopoly
1. Patents2. Copyrights
3. Trademarks and Servicemarks-
Trademarks do not expire, but can be lost through
abandonment, dilution or common use.
Common use refers to the trademarked name
becoming a commonly used name for the product,so that competitors can claim the need to use that
name to describe their product to customers.
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Market Structure
Monopsony
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Market Structure
Monopsony
-A market with only one buyer.
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Market Structure
Monopsony
-A market with only one buyer.
-In a monopoly, a seller with no competition candictate higher prices paid by competing buyers.
-In a monopsony, a buyer with no competition can
dictate the price charged by competing sellers.-Since price is not freely determined both
situations are considered to be flawed markets.
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Market Structure
Oligopoly
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Market Structure
Oligopoly
-A market with few sellers.
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Market Structure
Oligopoly
-A market with few sellers.
-There are so few sellers that the actions of one
seller influence the actions of other sellers.
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Market Structure
Oligopoly
-A market with few sellers.
-There are so few sellers that the actions of one
seller influence the actions of other sellers.
-In an oligopoly, each seller feels that they are in
such tight competition that they must respond towhat their competitors do.
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Market Structure
Oligopsony
-A market with few buyers.
-There are so few buyers that the actions of one
buyer influence the actions of other buyers.
M k t St t
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Market Structure
Oligopsony
-A market with few buyers.
-There are so few buyers that the actions of one
buyer influence the actions of other buyers.
-Oligopsony does not generally occur at the
consumer level, but does sometimes occur at theproducer level.
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M k t St t
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Market Structure
Monopolistic Competition
-Competition between several different producers
of similar (but not identical) products.
The individual products are protected under the
narrow monopolies created and protected by
patents, copyrights and trademarks.
M k t St t
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Market Structure
Monopolistic Competition
-Competition between several different producers
of similar (but not identical) products.
-Markets in monopolistic competition are
characterized by the presence of
1. brand names
2. non-price competition
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Market Structure
Pure Competition
Theoretical market which involves the highest
possible degree of competition.
There are five requirements for a pure market.
Market Structure
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Market Structure
Pure Competition
1. Many Buyers and Sellers
Market Structure
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Market Structure
Pure Competition
1. Many Buyers and Sellers
2. No barriers to Entry or Exit
Market Structure
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Market Structure
Pure Competition
1. Many Buyers and Sellers
2. No barriers to Entry or Exit
3. No Government Intervention
Market Structure
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Market Structure
Pure Competition
1. Many Buyers and Sellers
2. No barriers to Entry or Exit
3. No Government Intervention4. Homogenous Goods
Market Structure
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Market Structure
Pure Competition
1. Many Buyers and Sellers
2. No barriers to Entry or Exit
3. No Government Intervention4. Homogenous Goods
5. Perfect Knowledge of the Market
Market Structure
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Market Structure
Pure Competition
In a pure competition situation, price will be the
only factor considered when deciding which
products to buy.
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Competition
In the US economic system, we depend upon
competition to provide us with the benefitsof lower prices and higher quality.
As consumers, competition is highlybeneficial, but to producers, it requires
harder work and less profit.
As a result, producers have always tried tofind ways to avoid competition.
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Competition
Historically, the oldest form of competition
avoidance is Collusion.
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Competition
Historically, the oldest form of competition
avoidance is Collusion.
Collusion is simply an agreement between
two or more firms to avoid competition.
It can be a simple handshake agreement, or
an extremely complex arrangement.
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Competition
Historically, the oldest form of competition
avoidance is Collusion.
The market systems
of Europe werebased
on Collusion,
includingvarious Guilds,
Leagues and Unions.
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Competition
When the US was formed, there wereattempts to force competition. As early as
1792, there was a city ordinance in
Philadelphia outlawing price fixing.
This brought about the Covenant, which is
simply a collusive agreement held in secret.
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Competition
With the advent of industrialization and mass
production, new forms of competitionavoidance are developed.
The Cartel is a method of collusion involving
dividing a market.
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Competition
In the post-Civil War era, the Trust developed
as the highest form of anti-competitiveorganization.
The Railroad industry was the first to be
controlled by a trust, but eventually there
would be dozens of trusts controlling almost
all major industries.
Competition
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Competition
There are many different forms of trusts, but
basically the trust takes advantage of thelegal form of the corporation, wherein theownership of a corporation is expressed interms of stock. The corporation exists as a
separate legal entity. No one owns acorporation, rather you own stock in a
corporation.
This structure allows the trust to exist.
Competition
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Competition
In its simplest form, a trust is a corporation that
owns shares of stock in other corporations.
This allows formerly competing companies to be
controlled by a single trustee, who directs them
as if he was running a monopoly.
Competition
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Competition
Anti-Trust Law
Although states and localities had laws
enforcing competition, the federal
government maintained a laissez faire
approach until 1890.
Competition
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Competition
Anti-Trust Law
1890 Sherman Anti-Trust Act
Collusive Oligopolies deemed to be in
restraint of trade shall be illegal
Competition
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Competition
Anti-Trust Law
1890 Sherman Anti-Trust Act
Collusive Oligopolies deemed to be in
restraint of trade shall be illegal
The Sherman Act left open avenues for non-
competitive behavior, including price-discrimination and interlocking directorates.
Competition
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Competition
Anti-Trust Law
1890 Sherman Anti-Trust Act
1914- Clayton Amendment
Competition
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Competition
Anti-Trust Law
1890 Sherman Anti-Trust Act
1914- Clayton Amendment
The Clayton amendment closed loopholes inthe Sherman act and specifically forbade
price discrimination, interlocking directorates,
and the use of the Sherman act to enjoinlabor union activities.
Competition
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Competition
Anti-Trust Law
1890 Sherman Anti-Trust Act
1914- Clayton Amendment
1914- Federal Trade Commission Act
Competition
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Competition
Anti-Trust Law
1890 Sherman Anti-Trust Act
1914- Clayton Amendment
1914- Federal Trade Commission Act
Passed as a companion to the Clayton act.Created the FTC and gave it authority to
investigate, prosecute, and levy penalties inanti-trust cases.
Competition
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Competition
Anti-Trust Law
1890 Sherman Anti-Trust Act
1914- Clayton Amendment
1914- Federal Trade Commission Act
1936Robinson-Patman Act
Competition
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Competition
Anti-Trust Law
1890 Sherman Anti-Trust Act
1914- Clayton Amendment
1914- Federal Trade Commission Act
1936Robinson-Patman Act
-Made price discrimination illegal at the
producer level, as well as at the consumerlevel.
Competition
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Competition
Anti-Trust Law
1890 Sherman Anti-Trust Act
1914- Clayton Amendment
1914- Federal Trade Commission Act
1936Robinson-Patman Act
1950-Celler-Kefauver Anti-Merger Act
Competition
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Competition
Anti-Trust Law
1890 Sherman Anti-Trust Act
1914- Clayton Amendment
1914- Federal Trade Commission Act
1936Robinson-Patman Act
1950-Celler-Kefauver Anti-Merger Act
Forbade mergers that would substantially
lessen competition or tend to create amonopoly
Business Firm Organization and Competition
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Business Firm Organization and Competition
Business Firm Legal entity created for the
purpose of selling or distributing goods andservices.
Of all the different businesses in our system,
there are three basic forms of organization.These different forms are defined according to
how their ownership is expressed.
Each of the three has its own set of advantagesand disadvantages.
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Business Firm Organization and Competition
The simplest form of business organization is the
Sole Proprietorship.
A Sole Proprietorship is a business firm that is
wholly owned by one person.Most Common Form (74%)
Earns the smallest share of revenue (11%)
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Business Firm Organization and Competition
Advantages of the Proprietorship
1. Easiest form to organize or to dissolve.
Business Firm Organization and Competition
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Business Firm Organization and Competition
Advantages of the Proprietorship
1. Easiest form to organize or to dissolve.
2. No division of responsibility.(Be your own boss)
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Business Firm Organization and Competition
Advantages of the Proprietorship
1. Easiest form to organize or to dissolve.
2. No division of responsibility.(Be your own boss)
3. No division of profits.
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Business Firm Organization and Competition
Disdvantages of the Proprietorship
1. No Division of Responsibility.
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Business Firm Organization and Competition
Disdvantages of the Proprietorship
1. No Division of Responsibility.
2. Limited Life
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Business Firm Organization and Competition
Disdvantages of the Proprietorship
1. No Division of Responsibility.
2. Limited Life
3. Unlimited Liability.
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Disdvantages of the Proprietorship
1. No Division of Responsibility.
2. Limited Life.
3. Unlimited Liability.
4. Limited sources for funding.
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Partnership
A Partnership is a business firm that is wholly
owned by two or more people.
Least Common Form (9%)Earns more revenue than proprietorships (16%)
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g p
Advantages of the Partnership
1. Division of responsibility.
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g p
Advantages of the Partnership
1. Division of responsibility
2. Multiplication of sources for funds.
Business Firm Organization and Competition
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g p
Disdvantages of the Partnership
1. Division of Responsibility.
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g p
Disdvantages of the Partnership
1. Division of Responsibility.
2. Moderately Difficult to Organize.
Business Firm Organization and Competition
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g p
Disdvantages of the Partnership
1. Division of Responsibility.
2. Moderately Difficult to Organize.
3. Division of Profits.
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g p
Disdvantages of the Partnership
1. Division of Responsibility.
2. Moderately Difficult to Organize.
3. Division of Profits.4. Limited Life.
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Disdvantages of the Partnership
1. Division of Responsibility.
2. Moderately Difficult to Organize.
3. Division of Profits.4. Limited Life.
5. Unlimited Liability.
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Disdvantages of the Partnership
1. Division of Responsibility.
2. Moderately Difficult to Organize.
3. Division of Profits.4. Limited Life.
5. Unlimited Liability.
6. Still limited sources for funding.
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Corporation
A corporation is a business firm whose
ownership is expressed in terms of shares of
stock.
17% of three main types of businesses
Earns largest share of revenue of three main
types (72%)
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Corporation
A corporation is a business firm whose ownership is
expressed in terms of shares of stock.
17% of three main types of businessesEarns largest share of revenue of three main types
(72%)
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Corporation
Shareholders do not own a corporation, ratherthey own stock in a corporation.
Corporations must be chartered by the
government of the State where their operationsare based.
The corporation is a separate legal entity from
its shareholders. It is considered an
artificial person.
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Corporation
Shareholders do not own a corporation, butthey direct its actions through voting rights.
Most stock carries one vote per share towards aBoard of Directors.
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Stockholders vote for a Board of Directors
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Stockholders vote for a Board of DirectorsThe Board of Directors select (hire) Officers.
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Stockholders vote for a Board of DirectorsThe Board of Directors select (hire) Officers.
Who oversee the day-to-day operations.
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Stockholders vote for a Board of DirectorsThe Board of Directors select (hire) Officers.
Who oversee the day-to-day operations.
In order to earn profits
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Stockholders vote for a Board of DirectorsThe Board of Directors select (hire) Officers.
Who oversee the day-to-day operations.
In order to earn profitsWhich are paid out to the stockholders as
dividends.
Business Firm Organization and Competition
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Advantages of the Corporation
1. Limited Liability
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Advantages of the Corporation
1. Limited Liability
2. Unlimited Life (and Ease of Transfer)
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Advantages of the Corporation
1. Limited Liability
2. Unlimited Life (and Ease of Transfer)
3. Tax Advantages
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Advantages of the Corporation
1. Limited Liability
2. Unlimited Life (and Ease of Transfer)
3. Tax Advantages4. Two new sources for funding
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Two new sources for Funding
1. Stock -selling equity
2. Bonds issuing debt
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1. Stock -selling equityStock can be common or preferred.
Common Stock has voting rights, but is last in
line to claim assets.Preferred Stock is first in line for payment, but
usually has no voting rights.
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Sales of stock require the approval of the SecuritiesExchange Commission (SEC), a Federal
regulatory agency.Stock may be sold on an exchange where the
company is listed and brokers who have theright to represent customers can arrange sales
and purchases.It can also be sold on the over-the-counter (OTC)
market, where sales are made directly from ownerto buyer. Brokers who are members of NASDAQ
(National Association of Securities DealersAutomated Quotation System) facilitate these
trades.
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2. Bonds issuing debt
Sale of bonds is also regulated by the SEC.Bonds are essentially IOUs.
Two main types:
Coupon Bonds - $1000 face value, ten year term,simple interest paid annually
Zero-Coupon Bonds - Sold at discount, ten year
term, accrues compound interest monthly untilface value is reached.
Business Firm Organization and Competition
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Disadvantages of the Corporation
1. Most difficult to organize or dissolve
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Disadvantages of the Corporation
1. Most difficult to organize or dissolve
2. Separation of ownership and control
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Disadvantages of the Corporation
1. Most difficult to organize or dissolve
2. Separation of ownership and control
3. Double Taxation
Business Firm Organization and Competition
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7/28/2019 Market Structure Business Firm Organization and Competition
106/111
Disadvantages of the Corporation
1. Most difficult to organize or dissolve
2. Separation of ownership and control
3. Double Taxation4. Greatest potential division of profits
Business Firm Organization and Competition
-
7/28/2019 Market Structure Business Firm Organization and Competition
107/111
Special Cases
1. CooperativesAn association of individuals who join together to
perform a business function.
a) Producer Co-ops
b) Consumer Co-ops
Business Firm Organization and Competition
-
7/28/2019 Market Structure Business Firm Organization and Competition
108/111
Special Cases
1. Cooperatives
a) Producer Co-ops
b) Consumer Co-ops
2. Non-Profit Corporation
Business Firm Organization and Competition
-
7/28/2019 Market Structure Business Firm Organization and Competition
109/111
Special Cases
1. Cooperatives
a) Producer Co-ops
b) Consumer Co-ops
2. Non-Profit Corporation
3. S corporation
Business Firm Organization and Competition
-
7/28/2019 Market Structure Business Firm Organization and Competition
110/111
Special Cases
1. Cooperatives
a) Producer Co-ops
b) Consumer Co-ops
2. Non-Profit Corporation
3. S corporation
4. Limited Partnership
Business Firm Organization and Competition
-
7/28/2019 Market Structure Business Firm Organization and Competition
111/111
Special Cases
1. Cooperatives
a) Producer Co-ops
b) Consumer Co-ops
2. Non-Profit Corporation
3. S corporation
4. Limited Partnership
5. Limited Liability Company (LLC)