ECON 2302-Overview of Production Market Structures (Unit 2)

Summary

In his latest video, Professor Hank Lewis embarks on an enlightening journey through various production market structures. He kicks off by revisiting concepts like elasticity of demand before introducing a crucial visual tool—a table that contrasts different market structures, including perfect competition, monopolistic competition, monopolies, and oligopolies. Each market structure is meticulously described with its unique characteristics, from the number of firms, ease of market entry, price control, to the type of products produced. Special emphasis is laid on understanding non-price competition elements and providing real-world examples. The video aims to prepare students for more in-depth studies on firm operations, economies of scale, and strategic market behaviors in the following session.

Highlights

• Professor Lewis highlights the importance of understanding demand curves and elasticity in market structures. 📈
• The table outlined in the lecture serves as an essential tool for comparing market structures. 📊
• Differentiated and standardized products play a crucial role in defining market structures like monopolistic competition and perfect competition. 👗
• Unique attributes of monopolies, including significant entry barriers and price control, are explored. 🚫
• Oligopolies, generating a significant portion of GDP, are discussed with examples like the automotive industry. 🚙
• Non-price competition strategies such as branding and advertising are elaborated. 🎨

Key Takeaways

• Perfect competition involves numerous small firms producing identical products, with no price control. 🤝
• Monopolies have significant price control with a single firm dominating the market, producing unique products. 🏢
• Monopolistic competition mixes elements of monopoly and competition with differentiated products and moderate price control. 🍔
• Oligopolies feature a few large firms dominating a market, and can involve either collusion or competition. 🚗
• Understanding non-price competition like advertising and brand differentiation is key in certain market structures. 📣
• Real-world examples, from agriculture to tech, help illustrate the diversity of market structures. 🌾

Overview

Professor Lewis begins by engaging students with a recap on consumer utility models and elasticity of demand, setting the stage for a deep dive into market structures. He emphasizes the significance of these concepts in shaping the demand curve and introduces a foundational tool—a table—to compare various market structures effectively.

The lecture covers a wide array of market structures: perfect competition, monopolies (both pure and regulated), monopolistic competition, and oligopolies. Each structure is unpacked through unique characteristics like number of firms, type of products, market entry ease, and price control level, supplemented by real-world examples to facilitate understanding. This comparative overview empowers students to make sense of theoretical frameworks in practical contexts.

To wrap up, Prof. Lewis highlights the role of non-price competition and strategic behaviors within these market structures. He offers a glimpse of what's to come, hinting at advanced topics like firm economics, production costs, and strategic behavior in oligopolies. This sets a promising stage for upcoming lessons focused on deeper economic principles and market dynamics.

Chapters

• 00:00 - 01:00: Introduction and Overview of Production Market Structures The chapter provides an introduction and overview of production market structures. It follows previous lessons on consumer utility models and aims to explore different types of market structures. The lecture connects previous discussions on elasticity of demand and its impact on the demand curve's slope. The professor emphasizes the importance of creating a table to better understand these concepts, indicating a visual element to aid in learning the different market structures.
• 01:00 - 03:00: Detailed Explanation of Market Structure Table The chapter titled 'Detailed Explanation of Market Structure Table' describes a table with five columns and eight rows. The first column serves as the descriptor column. The first row requires the correct name without omitting or altering any words, emphasizing accuracy. The next row describes the type of product produced, highlighting how different market structures indicate unique, standardized, or differentiated products.
• 04:00 - 06:00: Perfect Competition The chapter discusses the concept of perfect competition in the market, describing how market structures can vary in the number of sellers. Some markets have only one seller, some have a few large ones, while others have many small sellers. The chapter emphasizes the size of an individual firm in relation to the entire market, and discusses entry and exit strategies in the market, including start-up entry and dissolution or bankruptcy as exit strategies.
• 06:00 - 08:00: Monopoly The chapter 'Monopoly' discusses various aspects of how businesses can enter or exit markets. It covers scenarios where a new product is introduced by a firm, or where a firm may discontinue a non-profitable product line. It also mentions mergers and demergers as forms of market entry and exit. The overriding theme is the ease or difficulty associated with entering or exiting different markets.
• 09:00 - 11:00: Monopolistic Competition In the chapter "Monopolistic Competition," the focus is on how price control and demand elasticity differ relative to other market structures. The degree of price control ranges from none to significant within monopolistic competition. Non-price competition is also significant in this structure, consisting of various strategies like advertising, brand names, logos, jingles, and social media campaigns, all of which influence sales independently from the product's price. These factors are described as non-price determinants or shifters of demand.
• 11:00 - 13:00: Oligopoly In this chapter titled 'Oligopoly,' the transcript discusses non-price competition as a strategy to influence non-price determinants of demand. It introduces various market structures, starting with perfect competition and moving to monopoly, which has two variations: pure and another unspecified type. The focus is on how oligopolies engage in competitive behaviors beyond just price changes to maintain or increase market share.
• 13:00 - 14:00: Conclusion and Upcoming Topics The chapter concludes by summarizing the various market structures discussed so far, including monopolistic competition which combines elements of monopoly and perfect competition. The chapter also introduces the topic of oligopoly, a diversified market structure with a few large sellers, setting the stage for further discussion in upcoming chapters.

ECON 2302-Overview of Production Market Structures (Unit 2) Transcription

• 00:00 - 00:30 good day microeconomics students professor Lewis here we've completed consumers utility models and now this next video is talking it's kind of an overview of different production market structures some of the stuff we talked about when we talked about the different types of elasticity of demand and how it affects how steep or flat the demand curve is but this is something you're going to want to create a table for so I'm gonna start sharing the screen and show you a blank table that we will be making use of here and so just bear with me for a moment this table is gonna be
• 00:30 - 01:00 five columns across left to right and it's gonna be eight rows down top to bottom the first column is gonna be a descriptor column first row was the proper name don't drop any words you drop a word or changing the name it's wrong next row talks about the kind of product that's produced different market structures will show different kinds of types of products some products are unique some products are standardized some are differentiated we'll explain that when we get to them number of firms
• 01:00 - 01:30 in the market won't be an absolute number but a range some structures have only one sellers some have just a few big ones I'm have a very large number of very small ones and that leads to our next type of size of the individual firm relative to the market I'll talk about percentage of total market output for an individual firm as representing a typical firm for the market entry and exit to the market means several things it could mean start up for entry it could be dissolution in bankruptcy for exit it could mean business that already
• 01:30 - 02:00 exists produces a new product and enters a market it's not producing in before it could mean a business discontinues a non profitable type of product the business still exists but it no longer produces in that market it could mean for exit that some firms are merging together it could mean that one firm is splitting up into two separate firms where one firm is going to basically focus on one line of business it's gonna be separate from the parent firm so there's all kinds of ways to enter or exit markets as the point this is how easy or difficult it
• 02:00 - 02:30 is relative to other structures price control kicks back to price elasticity demand individual businesses degree of price control varies from none to significant to moderate and everything in tween non-price competition is things like advertising brand names logos jingles social media campaigns that are the things that would attract sales that have nothing to do with the price of the product in fact we call those shifters of demand non-price determinants of demand because it's not the price of the
• 02:30 - 03:00 product whose demand is changing it's some other attribute related to that product and so a non-price competition is a means to influence one or more of the non-price determinants of demand and then of course a proper example now the names of our structures the first one is called perfect competition if you drop the word perfect that's not the same thing it has to be called perfect competition the next is called monopoly but there's two variations we will handle in the same column one it's called pure and the others called
• 03:00 - 03:30 regulated and where they are different it will be highlighted the next trip's is called monopolistic competition and it's not an oxymoron or contradiction in terms in many ways monopolistic competition is a bit more like perfect competition however it's got some elements of price control that a perfect competition firm will not have and last but not least our most diversified all kinds of variations market structure called oligopoly market was just a few large sellers some oligopolies are
• 03:30 - 04:00 competitive some are collusive on top of that some sell standardized products some so differentiated products in some structures is a few big firms that's all there are you know there's a few big firms that dominate the market that has some little firms to compete with them but only the big firms constitute an oligopoly oligopoly is by far the most complex of the bunch and also 80% of American gross domestic product comes out of oligopoly so we're gonna zoom in on perfect competition and fill this stuff in first here's this bear with me
• 04:00 - 04:30 a moment while I slide this thing around for perfect competition the type of product produced is called standardized standardized means everybody is producing the exact same product there's no means to distinguish one firms output for another either artificially or through actual physical means everybody produces the same product number of firms the market is described as an extremely large number 500 is an extremely large number so it's 7,000 but notice hundreds to thousands
• 04:30 - 05:00 of firms competing in a perfectly competitive market the size of the individual firm relative the market is described is very small the quantity of output produced by a single firm is less than 1% of Q market a 100 hectare which is 250 acres corn farm is point zero zero zero zero seven to five percent of all the corn produced in North America it is very small relative to the market entry and exit to this market is the easiest of all four structures that is described as very easy meaning it has a
• 05:00 - 05:30 minimum number of entry and exit barriers to getting in and out of the market you still have startup costs still have to actually come up with a product and a business plan but compared to the other structures its easiest to actually get started it's the easiest to get out of as well price control possessed by the firm zero zip nada none individual businesses that have absolutely no price control under perfect competition and the degree of non-price competition does not apply the reason why non-price competition is
• 05:30 - 06:00 considered not applicable here is because everybody produces the same product okay there's no way to distinguish your partner from somebody else's any spending and non-price competition is spending you should not have to do it's extra cost that they'll gain you that much revenue so it does not apply here examples your agricultural businesses like corn farms wheat farms and dairy farms and some of you all remember back from unit number one that they will have a horizontal demand curve for the firm fixed at P star now for the monopolies a
• 06:00 - 06:30 market with one large single seller okay some are pure some are regulated monopolies produce a unique product that has very few close substitutes in consumption the electricity produced by the power plants of NRG is one of those products because I dare you to try to live using a natural gas generator not doable too expensive for kilowatt hour not enough current number of firms in the market is only one or geographic
• 06:30 - 07:00 region size the individual firm relative to the market is considered very large one single firm produces the entire output for the market entry and eggs to the market is blocked it can be blocked by a legal structure the government says there can only be one seller cost structure meaning it's too expensive to start up a business relative to the ones that already they are economies of scale coming to play or maybe a mixture of both price control is significant if it's a true pure monopoly that it's regulated as moderate because the
• 07:00 - 07:30 government steps in and limits the degree of price control but notice they always have some price control non-price competition also not applicable because who's your competition is the only seller nobody examples your public utility companies like you know city of Houston water in our G or regulated monopolies a lot of text tech companies out there like the folks that have the license for the iPhone for example the folks there's a licence for blu-ray technology they have a business of business pure monopoly you can't have a
• 07:30 - 08:00 direct-to-consumer pure monopoly but you can have a business-to-business pure monopoly but novelistic competition is not a hybrid it is actually neither perfect competition nor is it monopoly it is something totally different the type of park produce is differentiated think about blue jeans think about fast-food yes they are designed to do the same thing satisfy hunger or cover your lower in quarters but there's different looks to them different brands different seasonings different styles same function but different in physical
• 08:00 - 08:30 or cosmetic details number of firms the market is medium number 50 to 100 firms individual firms described as being small to medium size meaning a single firm produces at least 1% but no more than 5% the market output Andry and eggs do the structure is easy but not as easy as perfect competition there are higher costs to startup there are higher operating costs you have to be larger to have more economies of scale and eggs in the market couldn't run into some other issues there now the degree of price
• 08:30 - 09:00 patrol possessed by the individual firms said to be moderate they have some because the product is differentiated if it was standardized it have none but having some way to distinguish your app or from another may be a specialized audience or specialized group of customers or maybe like you sell only to one particular area that's going to give you some price control non-price competition is substantial we have lots of non price competition because one of the ways you stimulate non-price demand is to advertise come up with your brand name
• 09:00 - 09:30 come up with your ad campaigns come up with contests all those non-price competitions will attract business and they have a huge benefit in this market restaurants at the owners levels and clothing stores qualify as your monopolistic competition firms now some oligopolies compete some collude but an oligopoly is a market that is part of meze characterized by a few large firms that dominate the market some oligopolies like primary aluminum
• 09:30 - 10:00 produces a standardized product some oligopolies like the automobile industry produce a differentiated product without both kinds now what you'll notice is an overlap between size and number of firms because there's two variations a straight-up oligopoly as I like to call it or a typical or classical Oleg awfully has two to twenty firms and that's all there are every firm the market produces at least 5% or more the market out but we call those large as a result the dominant firm could have a few big funds they're like gigantic dogs
• 10:00 - 10:30 in a pin with a few teacup chihuahua running around the ends the teacup chihuahuas are not part of the Oleg awfully only the big dogs are if the biggest four firms produce at least half the market output the biggest eight produce at least three-fourths of the biggest 12 produced at least 90% then just those big firms will constitute in Oleg awfully in their behavior so notice there's two variations there by size there are cross structure barriers to getting in economies of scale of bound businesses that are very large to buy a large scale machine technology which
• 10:30 - 11:00 enables more efficient production the smaller businesses don't have the money to buy that kind of large scale machinery exit can be blocked by law AT&T tried to acquire t-mobile the federal government said no we're going to sue you they'd like to maintain a market that's competitive and there's an Ola goth Lee and they may block mergers at will and so the legal barriers to prevent exit degree of price control if the firm's collude like with a cartel they've got a lot of price control significant if they don't collude as they compete like we see with cell phone
• 11:00 - 11:30 service it's moderate now non-price competition that depends it is significant if you have a differentiated product it is minimal if you have a standardized product and then last but not least I have already mentioned several examples here and so okay OPEC is a cartel that produces a standardized product called crude oil the airlines offer a differentiated service and there's been evidence of past collusion cigarettes are a differentiated product but again there's been evidence of past collusion primary lumina min cellphone services
• 11:30 - 12:00 these are more standardized products so cell phones have some degree of differentiation but they okay are going to be competitive as opposed to collusive and so this here is a nice little overview of all the structures and I want you to notice there's a lot of similarities but a lot of differences hopefully this helps clear this all up for you so one last thing before we say adios amigo okay we're going to stop screen sharing here we're gonna be learning about the
• 12:00 - 12:30 different types of operations within these firms over the course of the next few weeks here we're going to learn about costs revenues profits and losses and more about economies of scale we're also going to talk about rules for production or shutting down and when it comes to oligopoly strategic behavior so this is a nice little overview I hope it's helpful I'll talk to y'all later