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Four Market Models
From most competitive to least competitive:
- Involves very large numbers of firms producing identical products.
- Standardized product (a product identical to that of other producers--ex. corn or cucumbers).
- no attempt to advertise or differentiate
- Free Entry and Exit: no significant legal, technological, financial, or other obstacles prohibiting new firms from selling their output in any competitive market
- No control over the price: "Price Takers"
- (i.e. the firms have no market power) .
- The individual firm has very little to no impact on the market.
- Demand is perfectly elastic.
- ex. Agriculture
- pure competition markets do not actually exist.
- Involves large number of firms, but not as many as in pure competition.
- Produces differentiated products (ie. clothing, furniture, books)
- Nonprice competition - a selling strategy in which firms try to distinguish their product or service on the basis of attributes such as design and workmanship (product differentiation)
- Focuses mostly on advertising, brand names, and trademarks
- Firms can easily enter or leave this market, although not as easily as firms in a purely competitive market.
- Imperfect Competition.
- Limited control over prices
- ex. retail trade, dresses, shoes
- Involves a few firms that exert considerable influence over the industry
- Produces either standardized or differentiated products.
- NONPRICE COMPETITION: emphasis on product differentiation
- Existing firms are strong rivals and affects each other's price and output.
- Control over price limited by mutual interdependence; considerable with collusion (the decision of rivals).
- Harder for a firm to enter or exit.
- Imperfect competition.
- A great deal of nonprice competition, especially with differentiated products
- ex. steel, automobiles, household appliances
- Only one firm is involved.
- Products are unique with no substitutes.
- NONPRICE COMPETITION: mostly public relations
- Entry of additional firms is not possible--one firm constitutes the entire industry.
- Entry to the industry is often blocked by government. It requires patent or licenses.
- Since the monopolist produces a unique product, it makes no effort to differentiate its product.
- Imperfect Competition.
- There is total control over price "Price Makers"
- ex. local electric utility
- Oil, John D. Rockefeller
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, Dec 1 2009, 9:27 PM EST
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