Business Competition

The presence in a market of

independent
buyers
and
sellers
competing with one another and the
freedom of buyers and sellers to enter
and leave the market

lower costs and prices for goods

and services
more innovation
greater
efficiency
and
productivity
economic
development
and
growth
a
stronger
democracy
by
dispersing economic power
The playing field isn't level
Market share is divided among
many
Negative advertising can hurt

The number and relative size of

firms in an industry
Monopoly
A market structure in which the
number of sellers is so small that each
seller is able to influence the total
supply and the price of the good or
service
Microsoft, MPAA, Monsanto
Profit maximixer
Price maker
High barriers
Single seller
Price discrimination

Oligopoly
A market structure in which a
few firms sell either a standardized or
differentiated product, into which
entry is difficult, in which the firm has
limited control over product price
because of mutual interdependence
(except when there is collusion among
firms), and in which there is typically
nonprice competition
AT&T, Verizon Wireless,
Mobile, Sprint Nextel, Intel, AMD

Monopolistic Competition
A market in structure in which
many firms sell a differentiated
product, into which the firm has some
control over its product price, and in
which there is considerable nonprice
competition
Toothpastes, toilet paper

Market Structure

T-

an industry dominated by a
small number of large firms

firms sell either identical or

differentiated product
the industry has significant
barriers to entry
price maker
interdependence

Product differentiation
Many firms
No entry and exit cost in the
long run
Independent decision making
Same degree of market power

Imperfect competition
All market structures except
pure competition; includes monopoly,
monopolistic
competition,
and
oligopoly
Pure/Perfect Competition
A market structure in which a
very large number of firms sells a
standardized product, into which entry
is very easy, in which the individual
seller has no control over the product
price, and in which there is no non
price
competition;
a
market
characterized by a very large number
of buyers and sellers; A market in
which no buyer or seller has market
power
Stock exchange, horse betting,
free software,

A large number buyers and

sellers
No barriers of entry and exit
Profit maximization
Perfect factor mobility
Zero transaction costs

Price Discrimination
The selling of a product to
different buyers at different prices

when the price differences are not

justified by differences in cost

possible if more than

produced the product

Predatory Pricing

Public Utility

Predatory pricing is one way in

which a business may misuse its
market
power.
Predatory pricing
occurs
when
a
company
with
substantial market power or share of a
market sets is prices at a sufficiently
low level with the purpose of
damaging or forcing a competitor to
withdraw from the market.
This
conduct is illegal.

A firm that produces an

essential good
or service, has
obtained from a government the right
to be the sole supplier of the good or
service in the area, and as regulated
by that government to prevent the
abuse of its monopoly power

Cutthroat Competition
The practice of suppliers in a
specific market undercutting one
another, often to prices below cost, in
order to eliminate competition, usually
as a result of supply exceeding
demand
Price Rigidity
Refers to a situation where the
price of a good does not change
immediately or readily to new to the
market-clearing price when there are
shifts in the demand and supply curve
Price Maker
A seller (buyer) of a product or
resource that is able to affect the price
at which a product or resource sells by
changing the amount it sells (buys)
Price Taker
A seller (buyer) of a product or
resource that is unable to affect the
price at which a product or resource
sells by changing the amount it sells
(buys)
Cartel
A formal agreement among
firms (countries) in an industry to set
the price of a product and establish
the outputs of the individual firms
(countries) or to divide the market for
the product geographically
Natural Monopoly
An industry in which economies
of scale are so great that a single firm
can produce the product at a lower
average total cost than would be

one

firm

Economies of Scale
Reductions in the average total
cost of producing a product as the firm
expands the size of plant (its output)
in the long run; the economies of mass
production
Monopsony
A market structure in which
there is only a single buyer of a good,
service or resource
Oligopsony
A market structure in which the
number of buyers is small while the
number of sellers in theory could be
large ( e.g. cocoa Cargill, Archer
Daniels Midland, Barry Callebaut)
Product Differentiation
A strategy in which one firms
product
is
distinguished
from
competing products by means of its
design, related services, quality,
location or other attributes (except
price)
Nonprice Competition
Competition
based
on
distinguishing ones product by means
of product differentiation and then
advertising the distinguished product
to consumers
Interdependence
The participants in an economic
system are dependent on others for
the products they cannot produce
efficiently for themselves