Four Market Models[pic]
From most competitive to least competitive:
• Involves very large numbers of firms producing identical products.
• Standardized product (a product identical to that of other producers--ex. corn or cucumbers).
o no attempt to advertise or differentiate
• Free Entry and Exit: no significant legal, technological, financial, or other obstacles prohibiting new firms from selling their output in any competitive market
• No control over the price: "Price Takers"
• (i.e. the firms have no market power) .
o The individual firm has very little to no impact on the market.
• Demand is perfectly elastic.
Maximizes productive and allocative efficiency.
• ex. Agriculture
• pure competition markets do not actually exist.
Note: Pure competition does not actually exist in our society, and the agriculture industry is the closest industry to being purely competitive. The pure competition model is used as a standard to evaluate the efficiency of our economy (something to compare to and help our understanding of economy.)
• Involves large number of firms, but not as many as in pure competition.
• Produces differentiated products (ie. clothing, furniture, books)
o Nonprice competition - a selling strategy in which firms try to distinguish their product or service on the basis of attributes such as design and workmanship (product differentiation)
o Focuses mostly on advertising, brand names, and trademarks
• Firms can easily enter or leave this market, although not as easily as firms in a purely competitive market.
• Imperfect Competition.
• Limited control over prices
o ex. retail trade, dresses, shoes
• Involves a few firms that exert considerable influence over the industry
• Produces either standardized or differentiated products.
• NONPRICE COMPETITION: emphasis on...