Markets and Strategies

Types of Market Structures

Perfect Competition Market Structure: In a perfectly competitive market, the forces of supply and demand
determine the number of goods and services produced as well as market prices set by the companies in the
market.
Characteristics
1. Under perfect competition, there are a large number of buyers and sellers in the market.
2. The firms have no control over the price as sellers and buyers have perfect knowledge about the goods
and their prices. They have to sell the products at a price predetermined by the industry.
3. firms are free to exit and enter the market at any point in time. This means that there is no obstruction
for a new firm to produce a similar product produced by the existing firms in the market
4. The products offered by different firms are homogeneous. This implies that buyers do not have any basis
to prefer the goods of one seller over the goods of another seller. The goods are similar in terms of
quality, size, packing, etc.
Example:
1. Palengke (Wet Market): Wet markets in the Philippines often exhibit characteristics of perfect competition,
with numerous small vendors selling similar agricultural products such as fruits, vegetables, and meat.
2. Sari-sari Stores: Sari-sari stores, small neighborhood convenience stores, are ubiquitous in the Philippines
and often operate in a competitive market environment with many similar stores in close proximity.
3. Public Transportation: Public transportation services, such as jeepneys and tricycles, often operate in
competitive markets with many small operators providing similar services along established routes.
Types of Market Structures
Monopoly: Monopolies and completely competitive markets sit at either end of market structure extremes.
However, both minimize cost and maximize profit. Where there are many competitors in perfect competition,
in monopolistic markets, there's just one supplier. High barriers to entry into the monopoly market leave a
"mono-" or lone company standing so there is no price competition. The supplier is the price-maker, setting a
price that increases profits.
Characteristics
1. In a monopoly, there is a single seller dominating the market, with no close substitutes for its product.
2. The monopolist has significant market power, allowing it to set prices higher than marginal cost.
3. Entry into the market is restricted, and the monopolist may earn positive economic profits in the long
run.
Example:
Philippine Amusement and Gaming Corporation (PAGCOR): PAGCOR is a government-owned corporation that
holds a monopoly on casino operations in the Philippines, with exclusive rights to operate and license casinos
nationwide.
Manila Electric Company (MERALCO): MERALCO holds a monopoly on electricity distribution in Metro Manila
and several provinces in Luzon, serving millions of customers and controlling the distribution infrastructure.
National Grid Corporation of the Philippines (NGCP): NGCP operates the national power grid in the Philippines
and holds a monopoly on the transmission of electricity across the country, with exclusive rights to manage and
operate the transmission system.
Types of Market Structures
Monopolistic Competition: Unlike perfect competition, monopolistic competition does not assume the lowest
possible cost of production. That little difference in the definition leaves room for huge differences in how the
companies operate in the market. The companies under a monopolistic competition structure sell very similar
products with slight differences they use as the basis of their marketing and advertising.
Characteristics
1. Under monopolistic competition, a large number of firms sell closely related products.
2. Firms have some degree of market power, allowing them to differentiate their products through
branding, advertising, or product quality.
3. Entry and exit are relatively easy, and firms may earn positive economic profits in the short run.

Example:
Fast Food Chains: Fast food chains like Jollibee, McDonald's, and Burger King operate in a monopolistically
competitive market, offering similar types of fast food but with branding and product differentiation strategies.
Local Bakeries: Local bakeries in the Philippines offer a variety of baked goods, but each bakery may
differentiate itself through unique recipes, specialties, or customer service, resulting in a monopolistically
competitive market.
Clothing Retailers: Clothing retailers in shopping malls, such as Bench, Penshoppe, and Folded & Hung,
compete in a monopolistically competitive market, offering similar types of clothing with branding and style
differentiation.
Types of Market Structures
Oligopoly Competition: Oligopoly is a market structure characterized by a small number of large firms
dominating the market, with significant barriers to entry and interdependence among firms. An oligopoly is a
market structure where a few companies dominate the market.
Characteristics
1. Firms in an oligopoly may produce homogeneous or differentiated products.
2. Firms engage in strategic interactions, including price competition, collusion, and non-price competition.
3. In an oligopoly, a few large firms dominate the market, with significant barriers to entry.

Example:
Telecommunications Industry: The telecommunications industry in the Philippines is dominated by a few
major players, such as PLDT, Globe Telecom, and Dito Telecommunity, which control the majority of the market
share.
Banking Sector: The banking sector in the Philippines is dominated by a handful of major banks, including BDO
Unibank, Metropolitan Bank & Trust Company (Metrobank), and Bank of the Philippine Islands (BPI), resulting
in an oligopolistic market structure.
Automotive Industry: The automotive industry in the Philippines is dominated by a few major car
manufacturers and distributors, such as Toyota, Mitsubishi, and Honda, which have significant market power
and influence over pricing and distribution channels.
Markets
• Markets allow buyers and sellers to exchange goods
and services in return for a monetary payment.
• A market is a place where parties can gather to
facilitate the exchange of goods and services.
• There are many different kinds of markets:
- Local Farmer Market
- Market for electricity
- Market for computer software and software support.
Market Power
• Market Power is the ability of a business to set their
prices above a level that would exist in a highly
competitive market.
• It refers to the extent to which a commercial
enterprise can influence the price of a product or
service by exercising control over its supply, demand,
or both.
• It is the ability to ‘make the price’ or to sell at prices
above marginal costs
Acquiring & Maintaining Market Power
• One way is through legal protection from competition,
so that high prices can be set without new
competitors entering the market.
• Firm strategy may also play an important role in
establishing market power.