Final Exam - Lecture 3 Notes Flashcards
What is the government’s responsibility in a market?
for there to be competition
4 Types of Businesses
- Perfect Competition
- Monopolistic Competition
- Oligopoly
- Monopoly
What type of the two businesses are most common in the world?
(Most are the middle two!)
Oligopoly and Monopolistic competition
• Product differentiation
◦Make consumers think your product is better than the competition
◦Non-price Competition
They change your buying behavior something other than price becomes important to
you.
◦Doesn’t have to be a real difference -
can be perception
◦The key to understanding businesses is
product differentiation
◦The most successful businesses differentiate there _____.
product.
◦Monopolistic competition and oligopoly builds there lives around ______ ________.
product differentiation
• Monopolistic competition
◦Many small firms
◦Free entry and exit
◦Differentiated products
◦Come control over market, limited by free entry of competitiors
Examples of Monopolistic competition
Gardner, people who cut your hair, etc.
In a Monopolistic competition, what do they try to convince you with?
◦they do something to convince you to believe that they are better than the other guy
◦Most businesses fall in the category of ?
monopolistic competition
How do you get the control?
differentiating your product
What will big companies do to small companies if they innovate something good ?
copy them / replicate
How will a company increase it’s price?
differentiate their product.
mono means
one
Oligopoly
◦A few firms - interdependent
◦Products identical or differentiated
◦Strong barriers to entry
oli means
few
good examples of oligopoly
◦Car companies, airlines, etc.
• Interdependent
(of two or more people or things) dependent on each other.
◦Collusion [Tacit]
‣ The best solution for the companies is to collude. Means they work together
‣ Pepsi and coke work together
yes
‣ Tacit =
it’s not written down but it’s understood
‣ The smartest thing to do is to do the ____.
same
◦Concentration Ratio [4 firms]
‣ What part of the market does the 4 companies own
‣ In vegas mgm caesuras wynn las vegas sands those guys are 90% of the rooms.
◦H Index
Another way we measure is h index
‣ We square the percentage of the businesses it owns and add up
‣ Mg and cleanser 40 u square them 1600 and add them up 3200
‣ If it’s above 1600 you shouldn’t allow the companies to merge but they do it anyways.
‣ Microsoft owns 90% so you square it and the result is 1800
‣ The government supposedly uses this but they ignore it a lot.
◦The 2 ways we measure oligopoly
‣ Concentration ratio
‣ H index
