9-Perfect Competition to monopoly

  1. About





$ Sales

(in trillions)




  1. Firms with 500 or more employees are about 50% of the workforce
  2. 20 or less? About 20%
  1. Range of competition
    1. Perfect competitions
      1. Easy to enter and exit
      2. Prices are low and reflect costs
      3. Firms are mere price takers as they must accept market price
      4. The best example in the real world is agriculture
    2. Monopoly
      1. One seller has most or all of sales in a certain market
      2. They have the power to set prices (which are based on elasticity of demand)
      3. Profits are much higher
      4. For a monopoly to last over time it requires a barrier
        1. A patent for an invention
        2. By law: post office, BGE
        3. Collusion: large firms banning together
        4. Natural monopolies arise when economies of scale has a hand
    3. Monopolistic market
      1. Smaller firms sell differentiated products,
      2. Products are substitutes because of such things as branding,
      3. Examples include: restaurants, cereal, clothing
      4. If profits are high, you will see more firms enter and vice versa
      5. Short term large profits are possible,
      6. Overtime, however, the market can become more “perfect” and long-term profits will shrink
    4. Oligopoly(oligoi in Greek means a few and polein means to sell)
      1. Small number of firms have most or all of sales
        1. They either work as perfect competition of collude to have higher prices/profits
        2. If collusion occurs it is called a cartel
        3. Barriers for entry are high and are usually attributed to: patents, economies of scale, government regulation, expensive and complex technology
      2. Each oligopolist is aware of the actions of others,
        1. And need to take into account what the likely reaction of others will be
        2. “perfect knowledge”-firms know what their costs and demand are
        3. But may have imperfect knowledge of other firms
      3. Good example is the U.S. cellular phone market





      Screen clipping taken: 5/18/2011, 3:59 PM




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