Diff Types of Market Structure
Monopoly 1. Types of market structure 2. The diamond market 3. Monopoly pricing 4. Why do monopolies exist? 5. The social cost of monopoly power 6. Government regulation 7. Price discrimination • We are going to cover sections 10.1-10.4, sections 11.1-11.2, and for all practical purposes skip chapter 12. • Ben Friedman will speak in class on March 23 on his book The Moral Consequences of Economic Growth
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Announcements
Types of Market Structure In the real world there is a mind-boggling array of different markets. • In some markets, producers are extremely competitive (e.g. grain) • In other markets, producers somehow coordinate actions to avoid directly competing with each other (e.g. breakfast cereals) • In others, there is no competition (e.g. flights out of Tweed-New Haven airport). In general we classify market structures into four types: • perfect competition – many producers of a single, unique good. • monopoly - single producer of an unique good (e.g. cable TV, diamonds, particular drugs) • monopolistic competition – many producers of slightly differentiated goods (e.g. fast food) • oligopoly – few producers, with a single or only slightly differentiated good (e.g. cigarettes, cell phones, BDL to ORD flights)
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What determines market structure? • It really depends on how difficult it is to enter the market. That depends on control of the necessary resources or inputs, government regulations, economies of scale, network externalities, or technological superiority. It also depends on how easy it is to differentiate goods: • Soft drinks, economic textbooks, breakfast cereals can readily be made into different varieties in the eyes and tastes of consumers. • Red roses are less easy to differentiate
The Diamond Market • Geologically diamonds are more common than any other gem-quality colored stone. But if you price them, they seem a lot rarer ... • Why? Diamonds are rare because The De Beers Company, the world’s main supplier of diamonds, makes them
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Announcements
Types of Market Structure In the real world there is a mind-boggling array of different markets. • In some markets, producers are extremely competitive (e.g. grain) • In other markets, producers somehow coordinate actions to avoid directly competing with each other (e.g. breakfast cereals) • In others, there is no competition (e.g. flights out of Tweed-New Haven airport). In general we classify market structures into four types: • perfect competition – many producers of a single, unique good. • monopoly - single producer of an unique good (e.g. cable TV, diamonds, particular drugs) • monopolistic competition – many producers of slightly differentiated goods (e.g. fast food) • oligopoly – few producers, with a single or only slightly differentiated good (e.g. cigarettes, cell phones, BDL to ORD flights)
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What determines market structure? • It really depends on how difficult it is to enter the market. That depends on control of the necessary resources or inputs, government regulations, economies of scale, network externalities, or technological superiority. It also depends on how easy it is to differentiate goods: • Soft drinks, economic textbooks, breakfast cereals can readily be made into different varieties in the eyes and tastes of consumers. • Red roses are less easy to differentiate
The Diamond Market • Geologically diamonds are more common than any other gem-quality colored stone. But if you price them, they seem a lot rarer ... • Why? Diamonds are rare because The De Beers Company, the world’s main supplier of diamonds, makes them