MARKET

COMPETION
What Is It is a business environment
where different firms, located
MARKET both within and out of a country,
COMPETITION? have to compete with one another
solely on the merits of their goods
and services.
 MARKET
STRUCTURE
The competitive environment.
PURE COMPETITION
is a marketing situation where many
sellers offer similar products for similar
prices. In pure competition markets,
corporations have little control of a
product's price.
 PURE COMPETITION
CHARACTERISTICS
1. Very Large Numbers
2. Standardized Product
3. Price Takers
4. Free Entry and Exit

MONOPOLISTIC COMPETITION
The economic environment faced by
many firms cannot be described as
perfectly competitive.
MONOPOLISTIC COMPETITION
CHARACTERISTICS
• Large numbers of buyers and sellers
•Product heterogeneity
MONOPOLISTIC COMPETITION
CHARACTERISTICS
Free entry and exit
Perfect dissemination of information
Opportunity for normal profits in long-
run equilibrium

 OLIGOPOLY COMPETITION
It will exist when individual firm price–output
decisions have predictable consequences for a
handful of competitors, and those competitors
can be expected to react, oligopoly exists.
 OLIGOPOLY
MARKET CHARACTERISTICS
• FEW SELLERS.

• HOMOGENEOUS OR UNIQUE PRODUCTS.

• BLOCKADED ENTRY AND/OR EXIT.
• IMPERFECT DISSEMINATION OF INFORMATION.
• OPPORTUNITY FOR ECONOMIC PROFITS IN LONG-
RUN EQUILIBRIUM. .
 PRODUCT DIFFERENTATION
Real or perceived differences in the
quality of goods and services offered
to consumers lead to product
differentiation.
 PROFIT
MAXIMAZATION
-is the short run or long run process by which a
firm may determine the price, input and output
levels that will lead to the highest possible total
profit (or just profit in short).
 MISCONCEPTION OF
OLIGOPHOLY

there are no rivals selling the products of

monopoly firms
they can charge whatever they want.
they are guaranteed huge profits.
COLLUSION
IN
OLIGOPHOLY
Chapter 1
 Competition is said to be perfect when
producers offer what buyers want at prices
just sufficient to cover the marginal cost of
production.
 describes the competitive
environment in the market
for any good or service.
an individual or firm posing a sufficiently
credible threat of market entry to affect
the price–output decisions of incumbent
firms.
Real or perceived differences in the
quality of goods
and services offered to consumers
BARRIER TO BARRIER TO BARRIER TO
ENTRY MOBILITY EXIT
 is a market structure
characterized by a large number of buyers
and sellers of essentially the same
product.
 defined as the rate of return
necessary to attract capital investment, is
included as part of the financing costs
included in total costs.
Olivia Wilson
The marginal cost curve is the competitive firm
short-run supply curve so long as PAVC.
The sustainable level of output is given by the
competitive firm long-run supply curve.
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MONO P OLY
AND
MON OP SO NY

CHAPTER 12
 it will exists when a
firm is the sole
MONOPOLY producer
of a distinctive good or
service.

Monopoly firms are price

makers
 results when a
monopoly curtails output to a level
at which the marginal value of M o n o p oly
resources employed, as measured
by the marginal cost of production,
u n d e r p r o d u c t io n
is less than the marginal social
benefit derived, where marginal
social benefit is measured by the
price that customers are willing to
pay for additional output.
* deadweig ht l o ss
from m o no p o ly
problem

* wealth transfer
problem
Natural
monopoly
It does not arise from
government intervention or any artificial
barriers to entry, but can be a predictable
result given the
current state of technology and cost
conditions
in the industry.

Oligopsony exists when there are
only a handful of buyers present in a
market.
Monopsony exists when a market
features a single
buyer of a desired product or input.
Monopsony power enables
the buyer to obtain
lower prices than those
that would prevail in a
competitive market.
 Antitrust
laws
are designed to
promote
competition and
prevent unwarranted
monopoly.
Market niche is a segment of a market that
can be successfully exploited
through the special capabilities
of a given firm or individual.
MONOPOLISTIC
COMPETITION AND
OLIGOPHOLY
CHAPTER 12
 Monopolistic competition
IS CHARACTERIZED BY VIGOROUS PRICE COMPETITION; A LARGE
NUMBERS OF BUYERS AND SELLERS; DIFFERENTIATED, THOUGH
COMPARABLE, PRODUCTS; FREE ENTRY AND EXIT; PERFECT
INFORMATION; AND THE OPPORTUNITY FOR NORMAL PROFITS
IN LONG-RUN EQUILIBRIUM.
 Oligopoly
FIRMS HAVE THE ABILITY TO SET PRICING AND PRODUCTION STRATEGY, AND
ENJOY THE POTENTIAL FOR ECONOMIC PROFITS IN BOTH THE SHORT RUN AND
THE LONG RUN.
 IN THE SHORT RUN, FIRMS IN MONOPOLISTICALLY COMPETITIVE
MARKETS MAY ENJOY MONOPOLY PROFITS.
THE MONOPOLISTIC COMPETITION HIGH- PRICE/LOW-OUTPUT
EQUILIBRIUM IS IDENTIFIED BY THE POINT OF TANGENCY BETWEEN
THE FIRM’S AVERAGE COST CURVE AND A NEW DEMAND CURVE
REFLECTING A PARALLEL LEFTWARD SHIFT IN FIRM DEMAND.
THE MONOPOLISTIC COMPETITION LOW-PRICE/HIGH- OUTPUT
EQUILIBRIUM OCCURS WHEN COMPETITOR ENTRY ELIMINATES
PRODUCT DIFFERENTIATION IN THE LONG RUN.
 Cartel
A GROUP OF COMPETITORS OPERATING UNDER A
FORMAL OVERT AGREEMENT.
 Cournot model
POSITS THAT FIRMS IN OLIGOPOLY
MARKETS MAKE SIMULTANEOUS AND INDEPENDENT
OUTPUT DECISIONS.

THE RELATIONSHIP BETWEEN AN

OLIGOPOLY FIRM’S PROFIT-MAXIMIZING OUTPUT LEVEL AND
COMPETITOR OUTPUT IS CALLED THE OLIGOPOLY OUTPUT–
REACTION CURVE .
Price signaling
An informal but sometimes effective means
for reducing uncertainty in oligopoly market.

2 types of leadership
Price Leadership
Barometric price leadership
Bertrand model
FOCUSES UPON PRICE REACTIONS,
RATHER THAN THE OUTPUT REACTIONS, OF
OLIGOPOLY FIRMS.
Oligopoly price–reaction curve
THE RELATIONSHIP BETWEEN
THE PROFIT-MAXIMIZING PRICE LEVEL AND
COMPETITOR PRICE
Sweezy model
HYPOTHESIZES THAT WHEN
MAKING PRICE DECISIONS, OLIGOPOLY FIRMS HAVE A
TENDENCY TO FOLLOW RIVAL PRICE DECREASES BUT
IGNORE RIVAL PRICE INCREASES.
Contestable markets theory
Sweezy theory
Oligopholy theory
Economic Census
provides a comprehensive
statistical profile of the economy, from
the national,
to the state, to the local level.

Concentration ratios
measure the percentage
market share held by (concentrated in) a
group of top firms.
Herfindahl–Hirschmann Index (HHI)
is a measure
of competitor size inequality that reflects
size differences among both large and
small firms.
PRESENTED BY:
CARACA, STEPHANE KATE
CALIS, NIKKI
CAMANNONG, PEA