Levels of Competition in the Economy Monopoly

Levels of Competition in the Economy

Monopoly Ø Market is dominated by ONE seller Ø Can charge high prices because if you want it you have to pay it Ø Complete control over prices Ø No variety of goods Ø Complete barriers for other firms to enter and exit market

Monopoly continued…. Ø The government does allow monopoly power for certain reasons • Natural monopolies • Patents: exclusive rights to sell a NEW good or service for a specific amount of time • License: right to own a business

Oligopoly Ø Market is dominated by a few large firms Ø Examples: air travel, soda, appliance l l Coke and Pepsi control soft drink market Some variety of goods Low level of control over prices High level barriers to enter and exit the market

A Perfectly Competitive Market Every firm produces about the same product for the same price Ø Each firm controls a very small amount of the total supply Ø Four Conditions Ø l l Must have many buyers and sellers Sellers must offer identical products Buyers and sellers must be well informed about their products Sellers must be able to enter and leave the market easily

Perfectly Competitive Market continued… Ø No variety of goods Ø Many firms Ø No barriers to enter and exit the market Ø No control over prices

The Role of Prices in the Market Producers Consumers High Price *Produce more *Buy less *Increase supply *Think before you purchase Low Price *Reduce the supply *Leave the market *Buy more

Conglomerates a large corporation made up of many different companies Ø Can lead to more control of more markets Ø General Electric is a conglomerate l Owns l NBC Television Network l Universal Pictures l GE Aircraft Engines l GE Commercial Finance l GE Consumer Products l GE Industrial Systems l GE Insurance l GE Medical Systems l GE Plastics l GE Power Systems l GE Specialty Materials l GE Transportation Systems Ø

Mergers A merger is a combination of two companies to form a new company Ø Vertical Merger: A merger between two companies producing different goods or services for one specific finished product Ø • Example: Daimler-Chrysler or if a publishing company buys a paper company Ø Horizontal Merger: merger of two or more companies with similar product lines • Example: Sprint and Nextel or if Nike and Under. Armour combined for sportswear