What are the four conditions for perfect competition?
- Many buyers and sellers participate in the market
- Sellers offer identical products
- Buyers and sellers are well informed about products
- Sellers are able to enter and exit the market freely
perfect competition
a market structure in which a large number of firms all produce the same product
commodity
a product that is the same no matter who produces it, such as petroleum, notebook paper, or milk
barrier to entry
any factor that makes it difficult for a new firm to enter a market
imperfect competition
a market structure that does not meet the conditions of perfect competition
start-up costs
the expenses a firm must pay before it can begin to produce and sell goods
monopoly
a market dominated by a single seller
economies of sale
factors that cause a producer’s average cost per unit to fall as output rises
natural monopoly
a market that runs most efficiently when one large firm supplies all of the output
government monopoly
a monopoly created by the government
patent
a license that gives the inventor of a new product the exclusive right to sell it for a certain period of time
franchise
the right to sell a good or service within an exclusive market
license
a government issued right to operate a business
price discrimination
division of customers based on how much they will pay for a good
market power
the ability of a company to change prices and output like a monopolist
What are some examples of targeted discounts/price discrimination?
discounted airline fares, manufacturers’ rebate offers, senior citizen or student discounts, children fly or stay free promotions
What three conditions does a market need to meet for price discrimination to work?
- Some market power
- Distinct customer groups
- Difficult resale
monopolistic competition
a market structure in which many companies sell products that are similar but not identical
What are the four conditions of monopolistic competition?
- Many firms
- Few artificial barriers to entry
- Slight control over price
- Differentiated products
differentiation
making a product different from other similar products
nonprice competition
a way to attract customers through style, service, or location, but not a lower price
What are some examples of nonprice competition?
- Physical characteristics
- Location
- Service level
- Advertising, image, or status
oligopoly
a market structure in which a few large firms dominate a market
price war
a series of competitive price cuts that lowers the market price below the cost of production
collusion
an agreement among firms to charge one price for the same good
price fixing
an agreement among firms to charge one price for the same good
cartel
a formal organization of producers that agree to coordinate prices and production
predatory pricing
selling a product below cost to drive competitors out of the market
antitrust laws
laws that encourage competition in the marketplace
trust
like a cartel, an illegal grouping on companies that discourages competition
merger
combination of two or more companies into a single firm
deregulation
the removal of some government controls over a market
