Chapter 9: Product markets
- Perfect Competition
- Characteristics
- Large number of sellers
- no one seller or group of sellers can have a significant effect on the terms of exchange (transaction terms)
- prices, quantity, share of market, type of product, distribution, innovation, service warranty/guarantee
- All sellers compete for buyers of the same (homogenous) product
- The price is set
- sellers must charge the “going price” or lose their sales to the other firms
- the firms are “price-takers” (they sell at the set prices in the market)
- No barriers to entry for firms that want to enter the market
- examples: technological secrets, financial barriers, legal constraints
- No barriers to exit
- examples: government subsidies, tax relief, import quotas, high tariffs
- The products produced are perfect substitutes for each other because they are homogeneous
- No pricing strategy
- The price elasticity of demand for each firm is perfectly elastic
- Monopoly
- Characteristics
- One seller of a product for which there are no close substitutes
- Mostly inelastic
- but consumers can be influenced by price changes
- The downward sloping demand curve implies a pricing strategy
- the strategy:
- to change prices and outputs
- to have a significant effect on the terms of exchange
- Barriers to entry allow monopolists to increase prices and limit output
- Monopolistic Competition
- Characteristics
- Medium-sized firms that need to be innovative and differentiate their products in ways other than price
- Prices above marginal cost and minimum average cost
- Firms are less efficient than those in perfect competition
- Pretty inelastic
- Oligopoly
- Characteristics
- A few sellers who act interdependently to be price-makers
- purpose:
- to control markets and the terms of exchange
- Very strong barriers to entry
- Connection: fewer substitutes, lower price elasticity of demand, more pricing power
- Both homogenous and heterogeneous products sold
- Types:
- collusive model
- similar to monopoly
- noncollusive model
- kinked demand curve
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Aboukhadijeh, Feross. "Chapter 9: Product markets" StudyNotes.org. Study Notes, LLC., 12 Oct. 2013. Web. 16 Sep. 2024. <https://www.apstudynotes.org/microeconomics/outlines/chapter-9-product-markets/>.
