AAEC 2305
Fundamentals of Ag Economics
Chapter 7
Forms of Market Competition
Objectives
 This chapter will help you learn:
• How firms operating in different competitive
environments determine prices and outputs.
• About economic problems associated with
each form of competition
• About social costs and benefits of each form of
competition.
Alternative Economic Systems
 Capitalism -
• Private ownership of resources
• Freedom of individuals & economic units to
make choices in their best interest
• Marketing system with flexible prices as the
coordinating mechanism
• Possibility of wide range of income levels
• Wealth considered desirable as it stimulates
creativity and productivity.
(continued)
 Communism-
•
•
•
•
Public ownership of most resources
Central economic planning
Greater exercise of authority of the state
Government places greater emphasis on
having less divergence among individuals in
incomes and wealth.
(continued)
 Between these two extremes (capitalism &
communism), there are many other
possibilities of resource ownership,
government planning, & degree of
economic freedom.
 Between these two extremes lies
socialism.
(continued)
 However, no economy is purely capitalist,
socialist, or communist.
 Ex. - In U.S. many of the basic resources are
publicly owned or controlled by the
government.
Alternative Market Structures
 In chapter 5, we examined perfectly
competitive markets.
 However, many markets operate under
imperfectly competitive conditions.
 Can have imperfectly competitive markets
on the buyers or sellers (or both).
(continued)
 In the event, one is in perfectly competitive
conditions and one is in imperfectly
competitive, the result generally favors the
participant with market power.
Imperfect Competition
 Imperfect competition exists whenever the
individual or firm buying or selling a
product or service has some control over
the prices.
• Keyword is Control over Prices
 How much an imperfectly competitive firm
or buyer can influence the market price
depends on its position in the market.
(continued)
 Important characteristics:
•
•
•
•
•
Firm’s size
Market share
Strategies for buying & selling
Also depends on general market conditions
Actions of Competitors