Brainstorm! As a class, do the following: List a company/companies that have no real competition



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Models of Competition

4 types of Nonprice Competition

  • Characteristics of Goods
    • Firms distinguish products through size, color, shape, texture or taste
    • Ex. Coke vs. Pepsi, Lemon Pepsi, Vanilla Coke
  • Location of Sale
    • A convenience store in the middle of the desert differentiates by selling it miles from competitors

4 types of Nonprice Competition (cont.)

  • Service Level
    • Some sellers can charge higher prices because they offer customers a higher level of service
    • Ex. Fancy sit-down restaurant vs. McDonalds
  • Advertising Image
  • Advertising creates apparent differences between products in the marketplace.
  • Ex. Jordans vs. Carmelo Anthony’s shoes

Monopolistic vs. Perfect Competition

  • Perfect Competition
  • Monopolistic Competition
  • Prices
  • Lower, firms have no control
  • Higher, firms have some control
  • Profits
  • Lower
  • Higher in short term, but must work hard to keep ahead of rivals
  • Cost and Variety
  • Low costs, no variety (identical products)
  • Higher costs for differentiation, wide variety

Oligopoly

  • Def. A market dominated by a few, large profitable firms

How do Oligopolies work?

  • Collusion:
    • An agreement among members of an oligopoly to set prices and production levels.
  • Price Fixing:
    • An agreement among firms to sell at the same or similar prices.
  • Both are Illegal in the U.S.
  • Cartels:An association by producers established to coordinate prices and production.
    • Ex. OPEC: Organization of Petroleum Exporting Countries controls the oil supply and manipulates prices of gasoline.
    • Ex. DeBeers controls 80% of world’s diamonds, keeps prices high by limiting supply.

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