{"id":192,"date":"2017-02-11T20:50:57","date_gmt":"2017-02-12T01:50:57","guid":{"rendered":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/?post_type=chapter&p=192"},"modified":"2017-04-25T20:12:13","modified_gmt":"2017-04-26T00:12:13","slug":"introduction-to-imperfect-competition","status":"publish","type":"chapter","link":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/chapter\/introduction-to-imperfect-competition\/","title":{"raw":"Introduction to Imperfect Competition","rendered":"Introduction to Imperfect Competition"},"content":{"raw":"
<\/div>\r\n
\r\n
<\/div>\r\n
<\/figcaption>\r\n\r\n[caption id=\"attachment_2030\" align=\"aligncenter\" width=\"685\"]\"\" In the mid-nineteenth century, the United States, specifically the Southern States, nearly had a monopoly in the cotton supplied to Great Britain. These states attempted to leverage this economic power into political power \u2013 trying to sway Great Britain to recognize the Confederate States of America. (Credit: AgriLife Today\/ Flickr\/ CC BY-NC-ND 2.0)[\/caption]<\/figure>\r\n
\r\n

Monopolizing on History<\/h3>\r\nMany of the case studies in this text have focused on current events, but lets step into the past to observe how monopoly, or near monopolies, have helped shape history. In the spring of 1773, the East India Company, a firm that, in its time, was designated \u201ctoo big to fail,\u201d was experiencing ongoing financial difficulties. To help shore up the failing firm, the British Parliament authorized the Tea Act. The act continued the tax on teas and made the East India Company the sole legal supplier of tea to the American colonies, giving them legal monopoly power. By November, the citizens of Boston had had enough. They refused to permit the tea to be unloaded, citing their main complaint: \u201cNo taxation without representation.\u201d Arriving tea-bearing ships were warned via several newspapers, including\u00a0The Massachusetts Gazette<\/em>, \u201cWe are prepared, and shall not fail to pay them an unwelcome visit.\u201d\r\n\r\nThe result? When the ships arrived, a group called the Sons of Liberty boarded them and threw their chests of tea into the sea. This was the\u00a0culmination of a resistance movement throughout <\/span>British America against the <\/span>Tea Act. Ultimately\u00a0this escalated to\u00a0the <\/span>American Revolutionary War\u00a0in 1775.<\/span>\r\n\r\nFast forward in time to 1860\u2014the eve of the American Civil War\u2014to another near-monopoly supplier of historical significance: the U.S. cotton industry. At the time, the Southern States provided the majority of the cotton Britain imported. Wanting to secede from the Union, the South hoped to leverage Britain\u2019s high dependency on its cotton into formal diplomatic recognition of the Confederate States of America.\r\n\r\nSouthern cotton-merchants spontaneously refused to ship out their cotton in early 1861. The strategy, now known as 'King Cotton' was relatively unsuccessful. By summer 1861, the <\/span>Union Navy\u00a0had blockaded every major Confederate port and shut down over 95% of exports, making it so they couldn't export Cotton if they wanted to. Britain was able to draw on stockpiles of cotton\u00a0while finding imports from new sources, and the confederacy no longer received much needed gold.<\/span>\r\n

Monopoly sellers often see no threats to their superior marketplace position. In\u00a0the case of tea,\u00a0the monopoly market structure was a key reason for social change. With Cotton, its power a military strategy. In this topic we will explore a range of market structures, each with unique attributes.<\/p>\r\n\r\n<\/div>\r\n \r\n

\r\n
\r\n
\r\n

Topic\u00a0Objectives<\/h3>\r\nTopic 8: Imperfect Competition<\/strong>\r\n\r\nIn this Topic, you will learn about:\r\n
    \r\n \t
  • How Monopolies form: Barriers to Entry<\/li>\r\n \t
  • How a Profit-Maximizing Monopoly Chooses Output and Price<\/li>\r\n \t
  • Monopolistic Competition<\/li>\r\n<\/ul>\r\n<\/div>\r\n<\/div>\r\n
    \"Monopolizing on History\" showed\u00a0examples of markets that do\u00a0not behave like perfect competition.\u00a0Before thinking about different structures, remember our assumptions with perfect competition:<\/div>\r\n
    <\/div>\r\n
    1. Products are Homogeneous<\/strong><\/div>\r\n
    2. Buyers are Price-takers<\/strong><\/div>\r\n
    3. Suppliers are Price takers<\/strong><\/div><\/figure>\r\n
    \r\n\r\nSince firms have no influence on the market price in a perfectly competitive market, price = marginal revenue, which is constant regardless of the production level. This means the firm produces where price = marginal cost.\r\n\r\n<\/div>\r\n
    \r\n\r\nIn a competitive market, firms are\u00a0unable to increase their prices above equilibrium without losing at least some customers. In reality, we know that this is often not the case. Clothing brands, for example, can sell items for much higher than what they cost to make, whereas other firms that are selling similar products at a lower price struggle to get by. This is in part due to the number of firms in a market and in a firm\u2019s ability to distinguish its products from its competitors.\r\n\r\n<\/div>\r\n
    In reality, there is a spectrum of different market structures called the\u00a0Spectrum of Competition.<\/strong><\/div>\r\n
    \r\n
    \"The<\/div><\/figure>\r\n
    \r\n\r\nFirms face different competitive situations. At one extreme\u2014perfect competition\u2014many firms are all trying to sell identical products. At the other extreme\u2014monopoly\u2014only one firm is selling the product, and this firm faces no competition. Monopolistic competition and oligopoly fall between the two extremes. Monopolistic competition is a situation with many firms selling similar, but not identical, products. Oligopoly is a situation with few firms that sell identical or similar products.\r\n\r\n<\/div>\r\nWe analyzed perfect competition in depth in Topic 7. Now, let\u2019s view the other extreme and examine a firm\u2019s behaviour without competition.","rendered":"
    <\/div>\n
    \n
    <\/div>
    <\/figcaption>
    \"\"
    In the mid-nineteenth century, the United States, specifically the Southern States, nearly had a monopoly in the cotton supplied to Great Britain. These states attempted to leverage this economic power into political power \u2013 trying to sway Great Britain to recognize the Confederate States of America. (Credit: AgriLife Today\/ Flickr\/ CC BY-NC-ND 2.0)<\/figcaption><\/figure>\n<\/figure>\n
    \n

    Monopolizing on History<\/h3>\n

    Many of the case studies in this text have focused on current events, but lets step into the past to observe how monopoly, or near monopolies, have helped shape history. In the spring of 1773, the East India Company, a firm that, in its time, was designated \u201ctoo big to fail,\u201d was experiencing ongoing financial difficulties. To help shore up the failing firm, the British Parliament authorized the Tea Act. The act continued the tax on teas and made the East India Company the sole legal supplier of tea to the American colonies, giving them legal monopoly power. By November, the citizens of Boston had had enough. They refused to permit the tea to be unloaded, citing their main complaint: \u201cNo taxation without representation.\u201d Arriving tea-bearing ships were warned via several newspapers, including\u00a0The Massachusetts Gazette<\/em>, \u201cWe are prepared, and shall not fail to pay them an unwelcome visit.\u201d<\/p>\n

    The result? When the ships arrived, a group called the Sons of Liberty boarded them and threw their chests of tea into the sea. This was the\u00a0culmination of a resistance movement throughout <\/span>British America against the <\/span>Tea Act. Ultimately\u00a0this escalated to\u00a0the <\/span>American Revolutionary War\u00a0in 1775.<\/span><\/p>\n

    Fast forward in time to 1860\u2014the eve of the American Civil War\u2014to another near-monopoly supplier of historical significance: the U.S. cotton industry. At the time, the Southern States provided the majority of the cotton Britain imported. Wanting to secede from the Union, the South hoped to leverage Britain\u2019s high dependency on its cotton into formal diplomatic recognition of the Confederate States of America.<\/p>\n

    Southern cotton-merchants spontaneously refused to ship out their cotton in early 1861. The strategy, now known as ‘King Cotton’ was relatively unsuccessful. By summer 1861, the <\/span>Union Navy\u00a0had blockaded every major Confederate port and shut down over 95% of exports, making it so they couldn’t export Cotton if they wanted to. Britain was able to draw on stockpiles of cotton\u00a0while finding imports from new sources, and the confederacy no longer received much needed gold.<\/span><\/p>\n

    Monopoly sellers often see no threats to their superior marketplace position. In\u00a0the case of tea,\u00a0the monopoly market structure was a key reason for social change. With Cotton, its power a military strategy. In this topic we will explore a range of market structures, each with unique attributes.<\/p>\n<\/div>\n

     <\/p>\n

    \n
    \n
    \n

    Topic\u00a0Objectives<\/h3>\n

    Topic 8: Imperfect Competition<\/strong><\/p>\n

    In this Topic, you will learn about:<\/p>\n

      \n
    • How Monopolies form: Barriers to Entry<\/li>\n
    • How a Profit-Maximizing Monopoly Chooses Output and Price<\/li>\n
    • Monopolistic Competition<\/li>\n<\/ul>\n<\/div>\n<\/div>\n
      “Monopolizing on History” showed\u00a0examples of markets that do\u00a0not behave like perfect competition.\u00a0Before thinking about different structures, remember our assumptions with perfect competition:<\/div>\n
      <\/div>\n
      1. Products are Homogeneous<\/strong><\/div>\n
      2. Buyers are Price-takers<\/strong><\/div>\n
      3. Suppliers are Price takers<\/strong><\/div>\n<\/figure>\n
      \n

      Since firms have no influence on the market price in a perfectly competitive market, price = marginal revenue, which is constant regardless of the production level. This means the firm produces where price = marginal cost.<\/p>\n<\/div>\n

      \n

      In a competitive market, firms are\u00a0unable to increase their prices above equilibrium without losing at least some customers. In reality, we know that this is often not the case. Clothing brands, for example, can sell items for much higher than what they cost to make, whereas other firms that are selling similar products at a lower price struggle to get by. This is in part due to the number of firms in a market and in a firm\u2019s ability to distinguish its products from its competitors.<\/p>\n<\/div>\n

      In reality, there is a spectrum of different market structures called the\u00a0Spectrum of Competition.<\/strong><\/div>\n
      \n
      \"The<\/div>\n<\/figure>\n
      \n

      Firms face different competitive situations. At one extreme\u2014perfect competition\u2014many firms are all trying to sell identical products. At the other extreme\u2014monopoly\u2014only one firm is selling the product, and this firm faces no competition. Monopolistic competition and oligopoly fall between the two extremes. Monopolistic competition is a situation with many firms selling similar, but not identical, products. Oligopoly is a situation with few firms that sell identical or similar products.<\/p>\n<\/div>\n

      We analyzed perfect competition in depth in Topic 7. Now, let\u2019s view the other extreme and examine a firm\u2019s behaviour without competition.<\/p>\n","protected":false},"author":58,"menu_order":1,"comment_status":"closed","ping_status":"closed","template":"","meta":{"pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-192","chapter","type-chapter","status-publish","hentry"],"part":30,"_links":{"self":[{"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/pressbooks\/v2\/chapters\/192","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/wp\/v2\/users\/58"}],"replies":[{"embeddable":true,"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/wp\/v2\/comments?post=192"}],"version-history":[{"count":10,"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/pressbooks\/v2\/chapters\/192\/revisions"}],"predecessor-version":[{"id":2031,"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/pressbooks\/v2\/chapters\/192\/revisions\/2031"}],"part":[{"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/pressbooks\/v2\/parts\/30"}],"metadata":[{"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/pressbooks\/v2\/chapters\/192\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/wp\/v2\/media?parent=192"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/pressbooks\/v2\/chapter-type?post=192"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/wp\/v2\/contributor?post=192"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/pressbooks.bccampus.ca\/uvicecon103\/wp-json\/wp\/v2\/license?post=192"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}