Market Structure Lecture Note

Market Structure - Lecture Notes AP/ECON 1000 Four Major Market Structures: i. Perfect Competition ii. Monopolistic Competition iii. Oligopoly iv. Pure Monopoly OPOLISTIC COMPETITION: • In monopolistic competition, we still have many sellers (as we had under perfect competition). • They don’t sell identical products. Instead, they sell differentiated products— products that differ somewhat, or are perceived to differ, even though they serve a similar purpose. • Products can be differentiated in a number of ways, including quality, style, convenience, location, and brand name. EX. Some people prefer Coke over Pepsi, even though the two products are quite similar. • In that case, buyers could be persuaded to switch from one to the other. • Thus, if Coke has a big promotional sale at a supermarket chain, some Pepsi drinkers might switch (at least temporarily). How is product differentiation accomplished? • Sometimes, it’s simply geographical • At other times, perceived differences between products are promoted by advertising designed to convince consumers that one product is different from an- other—and better than it. • Regardless of customer loyalty to a product, however, if its price goes too high, the seller will lose business to a competitor. • Under monopolistic competition, therefore, companies have only limited control over price. OLIGOPOLY • Oligopoly means few sellers. • In an oligopolistic market, each seller supplies a large portion of all the products sold in the marketplace.