Page 679 - Krugmans Economics for AP Text Book_Neat

section 12

Module 64 Introduction to Oligopoly
Module 67 Introduction to Monopolistic Market
Module 65 Game Theory
Module 66 Oligopoly in Practice

Competition
Module 68 Product Differentiation and Structures:
Advertising
Economics by Example:
Imperfect
“What’s Behind the Music Industry’s Woes?”

Competition

The agricultural products company Archer Daniels Mid- you they have something special to offer beyond the ordi-
land (also known as ADM) has often described itself as nary burger: it’s flame broiled or 100% beef or super-thick
“supermarket to the world.” In 1993, executives from or lathered with special sauce. Or maybe they offer chicken
ADM and its Japanese competitor Ajinomoto met to dis- or fish or roast beef. And the differentiation dance goes on
cuss the market for lysine, an additive used in animal in the pizza industry as well. Pizza Hut offers cheese in the
feed. In this and subsequent meetings, the two companies crust. Papa John’s claims “better ingredients.” Dominoes
joined with several other producers to set targets for the has a “new recipe,” and if you don’t want thin crust, the al-
price of lysine, behavior known as price-fixing. Each com- ternative isn’t “regular,” it’s “hand tossed”! The slogans
pany agreed to limit its production to achieve the price and logos for fast-food restaurants often seem to differ
targets, with the goal of raising industry profits. But what more than the food itself.
the companies were doing was illegal, and the FBI had To understand why ADM engaged in illegal price-
bugged the meeting room with a camera hidden in a fixing and why fast-food joints go to great lengths to
lamp. Over the past few years, there have been numerous differentiate their patties and pizzas, we need to under-
investigations and some con- stand the two market struc-
victions for price-fixing in a tures in between perfect
variety of industries, from in- competition and monopoly
surance to college education in the spectrum of market
to computer chips. Despite power—oligopoly and mo-
its illegality, some firms con- nopolistic competition. The
tinue to attempt to fix the models of these two market
price of their products. structures are at the same
In the fast food market, it time more complicated and
is the legal practice of product more realistic than those we
differentiation that occupies studied in the previous sec-
the minds of marketing exec- tion. Indeed, they describe
utives. Fast-food producers go the behavior of most of the
to great lengths to convince firms in the real world.

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