Market Structures

 Market refers to a place

where buyers and sellers usually meet.
 In economics, however, the term market has a wide
perspective. It does not only refer to a place, but also to the
entire area where buyers and sellers of a product
are spread out.
o In today’s digital age, the sale and purchase of goods are
marketed in terms of online selling (is a market) where
transactions of commodities are made through the
internet, telephones/cellphones, etc.
 The market is a situation of the different competition among
sellers in offering their goods to buyers.

 Competition is the basic feature that defines or

characterizes the market structure or kind of market that
exists in a particular business undertaking or industry.
Characteristics of Market Structures
1. The number and nature of sellers and buyers.
a. Perfect Competition – many sellers/buyers of
homogeneous products.
b. Monopolistic Competition – many sellers/buyers of
differentiated products
c. Oligopoly – Few sellers/few large buyers (oligopsony) for a
product or service wherein the buyers have great control over
the suppliers if they drive down prices.
d. Monopoly – Single seller/single buyer (as buyer’s monopoly).
This occurs when there is one major employer in local labor
and many workers seeking to gain employment.
2. The nature/types of the product bought and sold.
a. Perfect Competition – if products offered and sold are
homogeneous, the market is characterized as perfect
competition.
b. Monopolistic Competition – If the products offered and sold
are differentiated, the market is characterized as monopolistic
competition.
c. Oligopoly – If the firms produce
homogeneous or differentiated products, there exists now an
oligopoly.
d. Monopoly – When a product is completely different from
other products and has no close substitutes, the market is
characterized as a pure monopoly.
3. The entry and exit of firms from the market.
 Barriers to entry and exit are important characteristics in
analyzing the market.
 One factor to be considered is the government. It plays a vital
role in the entry and exit of firms by setting up rules to
regulate the market.
 Barriers to entry are the hindrances that challenge new small
firms to dominate the market. The profits and losses in a
particular market attract the entry of new firms and lead to
the exit of weak firms from the market.
a. Perfect Competition – In a Perfect competition market, there
is freedom of entry or exit of firms. The markets are
unregulated, and the firms can freely enter and exit the
market in response to potential profit.
b. Monopolistic Competition – In Monopolistic competition,
there are no restrictions in the entry and exit of firms due to
product differentiation. Firms sell similar but highly
differentiated products. Barriers to entry and exit are easy in
monopolistic competition.
c. Oligopoly – In an Oligopoly, barriers to entry of firms are
difficult that prevent the entry of new firms into the industry.
Some of the reasons that prevent new firms from entering the
market are financial considerations such as the requirement of
large capital, patents, control over raw materials, etc.
d. Monopoly – in a Monopoly,
the entry or exit of new firms is blocked.
Water and power supply services can be
considered under monopoly competition.
 4. Pricing power
 describes the effect of a firm's price based on the quantity
demanded of a particular product and can relate to price
elasticity demand. For instance, if the price of a product in the
market goes up, the demand for that product will go down as
consumers will look for cheaper alternatives or other
substitutes.

a. Perfect Competition – In a Perfect competition, the

product has no influence on the market price and the firms
must accept the prevailing prices in the market.
b. Monopolistic Competition – In Monopolistic competition, a
firm can raise prices to increase profits, but they must
produce quality differentiated products to set them apart from
their competitors.
c. Oligopoly – In Oligopoly, firms also set their own prices and
avoid a price war with other firms such as those in the
gasoline industry and car industry.
d. Monopoly – In a Monopoly, the firm sets its own price due to
the high demand on the productor services offered.

5. Economies of Scale
When business entities scale(ing) up their production to cater to
an expanding market in the same locality or to other places, the
smaller firms have no choice but to compete with one another.
This situation causes the emergence or rise of oligopoly.
Eventually, the smaller firms unable to meet stiff competition
close shop, one by one, until only one firm, that attains such
extensive production and can meet the demand in the industry,
remains. When this situation occurs, it now becomes a monopoly.
Bluff 1. The Market Structure influenced by the number and
nature of sellers in the market. (buyers & sellers dapat)
Bluff 2. In a perfect competition, the product has no close
substitutes.
Bluff 3. Under oligopoly, there is one producer or seller of a
particular product there is no difference between a firm & an
industry.
Bluff, oligopoly 4. In monopoly, the market situation is one which
there are a few firms selling homogeneous or differentiated
products
Facts 5. Monopolistic competition refers to a market situation
wherein there are many firms selling differentiated product