Market Structure

1
Market Structure

• Market Demand
• versus
• Firm Demand

2
Monopoly

• patented drugs
• no competitors
• national market

3
market demand United States
price
30
Demand
quantity of Rogaine
50,000
4
firm demand
30
demand
quantity of Pharmacia Rogaine
50,000
5
Monopoly

• Firm Demand is identical
• to Market Demand

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oligopoly

• concrete
• market local
• 4 firms
• Consumers
• Stadler
• Peterman
• Ozinga

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market demand Kalamazoo
price
500
Demand
quantity of concrete
20
9
firm demand
price
500
demand
quantity of Peterman concrete
5
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oligopoly

• Each firm has only a piece of
• the market demand curve

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Oligopoly possible outcomes
ignore increase match decrease
rivals ignore price change
rivals match price change
500
500
500
demand
demand
demand
quantity
quantity
5
5
quantity
5
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monopolistic competition

• taverns
• market local
• differentiated product
• many firms

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Different location, service, atmosphere
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market demand Kalamazoo
price
2
Demand
100,000
quantity of beer
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firm demand
price
2
demand
quantity of beer at Lafayette
1000
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monopolistic competition

• firm has only small fraction of market demand
• firm demand is more elastic due to close
  substitutes

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competition

• corn
• market national or international
• product is a commodity
• perfect substitutes
• thousands of firms

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market demand United States
3
Demand
quantity of corn
5,000,000,000
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firm demand
?
3
firm is too small to show on this graph
5,000,000,000
quantity of corn from Wadell farm
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competition

• firm has infinitesimally small fraction of market
  demand
• commodities are perfect substitutes
• individual farmer has no control over price
• firm demand is horizontal, at market price, for
  all practical purposes

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firm demand
3
demand
400
100
300
200
quantity of corn from Wadell farm
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