Comparing Market Structures

Goals:

  • Identify the different market structures
  • Explore the implications of market power on the well-being of consumers and profitability of firms
  • Make lecture more memorable to increase retention

Relevant Clips:

Overview:

In principles of economics classes we tend to focus heavily on perfectly competitive markets; however, many of the markets we participate in every day are not perfectly competitive.  This module should help students understand key features of different market structures.

Discussion:

In the “Tommy’s Closet vs. Rent-a-Swag” clip, Tom has come up with the unique idea of renting his clothing out to tweens.  His company is doing well until the lack of entry barriers allows a competitor to open up an identical store across the street.  With no barriers to entry, new firms will enter driving the highest cost firms out of business and pushing profits of other firms to zero.  Ask students why Tom’s competitor would set up shop across the street; chances are students will be able to explain the intuition behind Hotelling Model even if they cannot formally derive the result.

In the “Celebrity Sushi” clip, Tom and Donna treat themselves in Beverly Hills at the hottest new restaurant that sells celebrity owned sushi.  This is an example of a company trying to carve out a niche in the broader sushi market.  Ask students how much of a premium they would be willing to pay for salmon previously owned by Nicki Minaj to illustrate that people’s different preferences may lead to a demand curve for new products.  The larger the slice of the market a firm can capture, the more market power the firm will have.  Ask students to think about how the introduction of a new type of sushi restaurant will affect the demand curves faced by other sushi restaurants and thus their profits.

“The Tent Mogul” clip illustrates the consequences of firm’s having complete market power as one man has essentially monopolized the rental tent market in Pawnee, IN.  You can ask students to think of examples of firms with market power and how that market power affects consumers.  For example, cable companies are frequently monopolies in a city, and cable companies are also notorious for providing terrible service; sometimes the costs to consumers of imperfect competition are not ONLY in the form of higher prices. Another great Parks and Rec clip comes when Leslie’s campaign needs to rent a fleet of vans to help get voters to the poll, but only one place in town has a fleet of white vans.