MARKET

STRUCTURE
Markets can be characterized by their “structure”; that is, by
the number of purchasers and suppliers within that market.
Markets that have a large number of buyers and suppliers are
considered to be competitive; no individual buyer or seller has
influence over the market price. Monopoly occurs when there is
only one supplier of a service. Input markets can also be
characterized by whether they are competitive or monopolistic.
Again, monopoly can occur in either the services market and/or
the input (health manpower) market. (A single purchaser in a
market that may have few or many sellers is a monopsonist).
Characteristics
of a Market
• Area
a market does not mean a particular place but the whole region where sellers and buyers of a product ate spread.

• Commodity
a market is not related to a place but to a particular product.

• Buyers and Sellers

The presence of buyers and sellers is necessary for the sale and purchase of a product in the market.

• Free Competition
There should be free competition among buyers and sellers in the market.

• One price
The price of a product is the same in the market because of free competition among buyers and sellers.
 Determinants of
Market Structure for
a particular good
• The number and nature of sellers.

• The number and nature of buyers.

• The nature of the product.

• The conditions of entry into and exit from the market.

• Economies of scale.
 PERFECT
COMPETITION
ASUNCION, ALFONSO R.
What is a “PERFECT COMPETITION”?

■ Perfect competition occurs when there are many sellers,

there is easy entry and exiting of firms, products are
identical from one seller to another, and sellers are price
takers.
Firms are said to be in perfect
competition when the following conditions
occur:
■ Many firms produce identical products.
■ Many buyers are available to buy the product, and many
sellers are available to sell the product.
■ Sellers and buyers have all relevant information to make
rational decisions about the product being bought and sold.
■ Firms can enter and leave the market without any
restrictions—in other words, there is free entry and exit into
and out of the market.
Perfect competition and why it matters?

■ A perfectly competitive firm is known as a price taker

■ Also, a perfectly competitive firm must be a very small
player in the overall market so that it can increase or
decrease output without noticeably affecting the overall
quantity supplied and price in the market.
■ A perfectly competitive market is a hypothetical extreme.
■ A perfectly competitive firm will not sell below the
equilibrium price either.
✓ the perfectly competitive firm will seek the quantity of
output where profits are highest or—if profits are not
possible—where losses are lowest.
✓ In the long run, perfectly competitive firms will react to
profits by increasing production.
✓ They will respond to losses by reducing production or exiting
the market.
5 Characteristics of a Market

■ Private Ownership (People own stuff, not the government.)

■ Freedom of choice
■ Motivation of self interest
■ Competition (optimized buying and selling platforms)
■ Limited government intervention
Monopoly Market
by: Shareen Albar
 Monopoly
• A monopoly is a specific type of economic market
structure. A monopoly exists when a specific person or
enterprise is the only supplier of a particular good. As
a result, monopolies are characterized by a lack of
competition within the market producing a good or
service.
 Key Points
• A monopoly market is characterized by the profit maximizer, price maker, high barriers to
entry, single seller, and price discrimination.
• Monopoly characteristics include profit maximizer, price maker, high barriers to entry,
single seller, and price discrimination.
• Sources of monopoly power include economies of scale, capital requirements,
technological superiority, no substitute goods, control of natural resources, legal barriers,
and deliberate actions.
• There are a few similarities between a monopoly and competitive market: the cost
functions are the same, both minimize cost and maximize profit, the shutdown decisions
are the same, and both are assumed to have perfectly competitive market factors.
• Differences between the two market structures including: marginal revenue and price,
product differentiation, number of competitors, barriers to entry, elasticity of demand,
excess profits, profit maximization, and the supply curve.
• The most significant distinction is that a monopoly has a downward sloping demand
instead of the “perceived” perfectly elastic curve of the perfectly competitive market.
 Characteristics of a Monopoly
• Profit maximizer: a monopoly
maximizes profits. Due to the lack of
competition a firm can charge a set
price above what would be charged in
a competitive market, thereby
maximizing its revenue.
• Price maker: the monopoly decides
the price of the good or product being
sold. The price is set by determining
the quantity in order to demand the
price desired by the firm (maximizes
revenue).
• High barriers to entry: other sellers
are unable to enter the market of the
monopoly.
• Single seller: in a monopoly one
seller produces all of the output for a
good or service. The entire market is
served by a single firm. For practical
purposes the firm is the same as the
industry.
• Price discrimination: in a monopoly
the firm can change the price and
quantity of the good or service. In an
elastic market the firm will sell a
high quantity of the good if the price
is less. If the price is high, the firm
will sell a reduced quantity in an
elastic market.
 Sources of Monopoly Power
• In a monopoly, specific sources generate the individual control of the
market. Sources of power include:

• Economies of scale
• Capital requirements
• Technological superiority
• No substitute goods
• Control of natural resources
• Network externalities
• Legal barriers
• Deliberate actions
 DUOPOLY
- A duopoly is a type of oligopoly where two firms have dominant or
exclusive control over a market. It is the most commonly studied
form of oligopoly due to its simplicity. Duopolies sell to consumers
in a competitive market where the choice of an individual
consumer can not affect the firm. The defining characteristic of
both duopolies and oligopolies is that decisions made by sellers
are dependent on each other.
 CHARACTERISTICS OF DUOPOLY

• Existence of only two sellers

• Interdependence: if any firm makes the change in the price or promotional scheme,
other forms also have to comply with it, to remain in the competition.
• Presence of monopoly elements: so long as products are differentiated, the firms
enjoy some monopoly power, as each product will have some loyal customers
• There are two popular models of duopoly, i.e., Cournot's Model and Bertrand's
Model.
 MONOPSONY

- A monopsony is a market condition in which there is only one buyer, the monopsonist.
Like a monopoly, a monopsony also has imperfect market conditions. The difference
between a monopoly and monopsony is primarily in the difference between the
controlling entities. A single buyer dominates a monopsonized market while an
individual seller controls a monopolized market. Monosonists are common to areas
where they supply most or all of the region's jobs.
 THE THREE KEY CHARACTERISTICS OF
MONOPSONY
• single firm buying all output in a market
• no alternative buyers
• restrictions on entry into the industry.
 OLIGOPOLY

- is a market form wherein a market or industry is dominated by a small group of large

sellers (oligopolists). Oligopolies can result from various forms of collusion that
reduce market competition which then typically leads to higher prices for
consumers. Oligopolies have their own market structure.
Barriers to entry
Non-Price are high.
Competition

CHARACTERISTICS OF OLIGOPOLY

• Profit maximization conditions

• Ability to set price
• Entry and exit
• Number of firms
• Long run profits
• Product differentiation
• Perfect knowledge
• Interdependence
• Non-Price Competition
MONOPOLISTIC
COMPETITION
Group 1
ALLIAN, ALKHAISER D.
Monopolistic Competition

 Monopolistic competition is a type of imperfect competition such that many

producers sell products that are differentiated from one another (e.g. by branding or
quality) and hence are not perfect substitutes. In monopolistic competition, a firm
takes the prices charged by its rivals as given and ignores the impact of its own prices
on the prices of other firms.[1][2] In the presence of coercive government, monopolistic
competition will fall into government-granted monopoly. Unlike perfect competition,
the firm maintains spare capacity. Models of monopolistic competition are often used
to model industries. Textbook examples of industries with market structures similar to
monopolistic competition include restaurants, cereal, clothing, shoes, and service
industries in large cities. The "founding father" of the theory of monopolistic
competition is Edward Hastings Chamberlin, who wrote a pioneering book on the
subject, Theory of Monopolistic Competition (1933).[3] Joan Robinson published a
book The Economics of Imperfect Competition with a comparable theme of
distinguishing perfect from imperfect competition.
Examples of monopolistic competition

The restaurant business.

Hotels and pubs.
General specialist retailing.
Consumer services, such as hairdressing.
What are the main characteristics of
monopolistic competition?

Monopolistic competition is a market

structure defined by four main
characteristics: large numbers of buyers and
sellers; perfect information; low entry and exit
barriers; similar but differentiated goods.
Understanding Monopolistic Competition

 Monopolistic competition is a middle ground between monopoly and perfect

competition (a purely theoretical state), and combines elements of each. All firms in
monopolistic competition have the same, relatively low degree of market power; they
are all price makers. In the long run, demand is highly elastic, meaning that it is
sensitive to price changes. In the short run, economic profit is positive, but it
approaches zero in the long run. Firms in monopolistic competition tend to advertise
heavily.