• Unit 7: Market Structure: Competitive and Non-Competitive Markets

    In this unit, we study how firms operate and compete within different market environments defined by the degree of competition. We introduce the concept of perfect competition, an ideal model that serves as a benchmark economists use to analyze real-world market structures. The model of perfect (or pure) competition results in an efficient allocation of resources. However, unregulated markets (which are central to perfect competition) often fail to create desired outcomes in the real world. Economists refer to these situations as examples of imperfect competition.

    Keeping the perfect competition model as the analytical benchmark, we transition to its polar opposite, the monopoly model. Following that, we venture into the realm of imperfect competition, encompassing two distinct models: monopolistic competition and oligopoly. Within the context of oligopoly, we introduce some concepts of game theory, such as the prisoner's dilemma model and the Nash Equilibrium.

    Completing this unit should take you approximately 5 hours.

    • 7.1: Perfect Competition

      Perhaps you have had the opportunity to explore the vibrant street markets in Europe, where a multitude of vendors and stalls present an array of products. These markets feature everything from fresh produce to handmade crafts, and sellers can easily set up shop, engaging in fierce competition with similar offerings. Transactions occur directly between buyers and sellers, ensuring transparency, and prices are established through the interplay of supply and demand, with individual vendors having minimal influence on market prices due to the similarity of their products.

    • 7.2: Non-competitive Markets: Monopoly

      As discussed, perfect competition, when extended to the long run, serves as a theoretical benchmark. In contrast, market structures like monopoly, monopolistic competition, and oligopoly, which are more commonly encountered in the real world than perfect competition, do not consistently operate at the minimum average cost, nor do they always equate price with marginal cost. In this section, we explore the concept of monopoly, which stands as the polar opposite of perfect competition within the spectrum of market structures.

      Monopoly, a market structure at the far end of the competitive spectrum, presents a stark contrast to the perfect competition model we discussed in the previous section.

    • 7.3: Imperfect Competition: Monopolistic Competition and Oligopoly

      Companies like McDonald's, Burger King, and Wendy's offer similar products but differentiate themselves through branding, menu items, and marketing strategies. Similarly, consumers encounter numerous choices for clothing and fashion items that share relative similarities in the apparel industry, such as brands like Gap, H&M, and Zara, among many others. How do we classify these markets?

      On the other hand, the pharmaceutical industry is often characterized by the dominance of a few major players, including Pfizer, Merck, and Johnson & Johnson. These companies wield substantial market influence and affect drug prices. In what type of market does the U.S. pharmaceutical industry operate? Clearly, it is not perfectly competitive. But is it a monopoly?

    • 7.4: Monopolies and Antitrust Policies

      In this section, we explore antitrust policies and other regulations U.S. policymakers have enacted to protect consumers from the loss of efficiency created by imperfectly competitive markets, particularly monopolistic and oligopolistic market structures. Policymakers must figure out the extent of their involvement to strike a balance between harnessing the potential advantages of widespread production and mitigating the risk of reduced competition when companies aim to exploit economies of scale.

    • Unit 7 Assessment

      • Receive a grade