Unit 6: Market Structure: Competitive and Non-Competitive Markets
This unit introduces 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 creates 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. As we study the model of perfect competition, we also move on to what many consider the antithesis of perfect competition, the monopoly model. Then, we will explore imperfect competition and two models that fall under it: monopolistic competition and oligopoly. We also touch on game theory, when we discuss the prisoner's dilemma model and the Nash equilibrium.
Completing this unit should take you approximately 10 hours.
Upon successful completion of this unit, you will be able to:
- explain the assumptions made about, and the differences between, perfectly competitive markets, non-competitive markets, and imperfectly competitive markets
- explain the characteristics of the model of perfect competition in the short-run and the long-run
- explain how demand and supply in the labor market behaves in a perfectly competitive model
- explain the characteristics of the model of monopoly and how a monopolist maximizes profit
- analyze how monopolistic competition affects the short-run equilibrium and the long-run equilibrium
- explain the characteristics of an oligopoly and how it compares to other competitive and non-competitive models
- explain how the US has used regulations to protect consumers and limit the excesses of businesses via antitrust policies
6.1: Perfect Competition
Read this chapter for an explanation of the model of perfect competition, which is crucial to your understanding of the more complicated and realistic models that will be studied next. Take a moment to read through the stated learning outcomes for this chapter of the text, which you can find at the beginning of each section. These outcomes should be your goals as you read through the chapter. Attempt the "Try It" problems at the end of each section.
Read this chapter as it gives you in a summary way the definition and assumptions of perfect competition.
Read Chapter 8, which provides an overview of the Perfect Competition model and a guide to the elements you need to know in order to understand the model. Be sure to read the sections following the introduction.
Study this chapter to learn about labor markets, including topics on wage differentials, discrimination, and unions.
Watch this video about how many people to hire given the marginal product revenue curve.
Watch this video about how perfect competition is depicted with a graph. Pay special attention in this video to the definition given for perfect competition. Also, make note of the equilibrium point in the market under this type of market.
6.2: Non-competitive Markets: Monopoly
Read this chapter to learn the characteristics, workings, and effects of the monopoly model. Take a moment to read through the stated learning outcomes for this chapter of the text, which you can find at the beginning of each section. These outcomes should be your goals as you read through the chapter. Attempt the "Try It" problems at the end of each section before checking your answers.
Watch this lecture for an explanation of the monopoly model. Pay special attention to how a mathematical equation for the demand curve and the supply curve can give you the equilibirum points for the quantity demanded and supplied and the equilibrium price. Also, note that the equilibrium point occurs when marginal revenue equals marginal cost for a monopolist.
Read this chapter, which discusses monopolies. Be sure to click through to read the sections that follow the introduction.
Watch this video about how a monopoly is depicted in a graph and compared to the perfectly competitive model. Make sure to go back to the main reading in Unit 6.1 and 6.2 to review the characteristics of the perfectly competitive market and the monopolistic market.
Watch this video about revenue and cost graphs for a monopoly. Keep in mind that the equilibrium point for a monopolist is where the marginal revenue is equal to the marginal cost.
Watch this video about how the demand curve relates to the total revenue curve and how a monopolist can maximize revenue. Keep in mind that this is Part 1 of three videos.
Watch this video about how the demand curve relates to the total revenue curve and how a monopolist can maximize revenue by calculating marginal revenue. Keep in mind that this is Part 2 of three videos.
Watch this video about how the demand curve relates to the total revenue curve and how a monopolist can maximize revenue by calculating marginal revenue and setting it equal to marginal cost. Keep in mind that this is Part 3 of three videos.
Read this section to see how monopolists can potentially use their unique place in an industry to charge different prices to different consumers - in other words, how they indulge in price discrimination.
Watch this video about first degree price discrimination by a monopolist.
6.3: Imperfect Competition
Read this section to learn about monopolistic competition. Take a moment to read through the stated learning outcomes for this chapter of the text, which you can find at the beginning of each section. These outcomes should be your goals as you read through the chapter. Attempt the "Try It" problem before checking your answer.
Read this chapter to learn about monopolistic competition. Make sure to distinguish the short-run from the long-run model.
Watch this video about oligopolies and monopolistic competition and know the difference between them. Also, make sure to go back to the main reading in Unit 6.3 to review the characteristics of these markets.
Watch this video about how the monopolistic competition market is depicted in a graph. Also, make sure that you understand how economic profit is determined in this market when marginal revenue is set to marginal cost.
Read the pages in this section. Take a moment to read through the stated learning outcomes for this chapter of the text, which should be your goals as you read through the chapter. Attempt the "Try It" problems at the end of the section before checking your answers.
Watch this video about oligopolies, duopolies, collusion, and cartels. Also, make sure to go back to the main reading in Unit 6.3 to review the characteristics of these markets.
Watch this lecture for an explanation of the oligopoly model. Pay special attention to the concept of the "Nask Equilibrium" that applies in this market when you have a few competitors that know each other's plans in the market.
Watch this video about game theory of cheating firms. For a review of how game theory can be used to understand the strategic behavior of firms in an oligopoly, go back to the main reading in Unit 6.3 titled "Oligopoly: Competition Among Few".
Watch this video about the Nash Equilibrium. Keep in mind that this is a concept in game theory that applies to a market with few competitors, like an oligopoly.
Watch this video about why parties in a cartel tend to cheat. Keep in mind that this type of market applies to imperfect competition, like a duopoly.
Watch this video about the Prisoners' Dilemma and the Nash Equilibrium. Keep in mind that this is a concept in game theory that applies to a market with few competitors, like an oligopoly.
6.4: Government Regulation
Read this chapter to learn about how government policies have been in place to curve the power of imperfect competition. Also identify what the US has used regulations to protect consumers and limit the excesses of businesses via antitrust policies.
Watch this video, which illustrates with the use of graphs the need for government intervention in imperfect markets.