Contemporary economic issues

facing Filipino entrepreneur

 Market structure-
• Market structure
– Market- a place or a state where transaction are
made between the seller and the buyer
– Market power- ability of any actor or group of
actors in the market to significantly influence the
price in the market and the quantity to be sold.
 Aim of every actor in the market (
consumer , Producer)
• Enhance its market power in order to increase
a. profit- for the producer
b. Satisfaction – for the consumers
Market power depends on what is the type of
market structure
- as an entrepreneur should know the
characteristic of the different market structure
he is trying to enter.
 4 Market Structures
M L
o e
r s
e s
C C
o o
m m
p Perfect Monopolistic p
Competition Oligopoly Monopoly
e Competition e
t t
i i
t t
i i
v v
e e

Home
 Different types of market structure-
• 1. Perfect competition-
Characteristic:
a. Many seller, many buyer- no single buyer, no
single seller can influence the price and
quantity of output
b. Product are standardized- no one can
develop brand loyalty on his/her product
c. no restriction to enter and exit-
• Every seller is the price taker- seller that price
its product above market price can end with
no seller since consumer may shift to another
seller
• Perfect information- both seller and buyer are
equipped with symmetric information.
• Constant competition- leads to efficient
production ( producing at a least possible
cost) efficient use of resources.
• Demand seen by a competitive firm is
perfectly elastic
 4 Market Structures
Perfect
Competition Perfect Competition
M L
o Many Demand is perfectly elastic e
r Producers Supply and Demand determine Price s
e Suppliers are Price takers s
C Identical C
o products o
m m
Easy Entry
p Monopolistic p
Oligopoly Monopoly
e No control Competition e
t over Prices t
i i
t t
i i
v v
e Examples: e
Very few examples
Some stock and commodities Commodity – exactly the same, no matter who makes it
Auctions
Fish and fruits vendors selling at the same market
Commercial fishing and wood pulp and paper industry Home
• 2. Monopolistic competition
Characteristic:
a. There is an imperfect competition/ tough
competition
b. Many sellers- producing products that are
similar but can be differentiated.
c. Many buyers-
d. No restriction to enter and exit / leave the
market
e. The seller can differentiate the product
offered
• Sellers can use differentiation strategy in
terms of:
price, product, convenience, location, etc..
• Sellers can also use concentrated or niche
marketing
• Niche market – a subset of segmented market
 4 Market Structures
Monopolistic Imperfect Competition
Competition
M Producers have some control over price L
Many
o Producers have market power e
Producers
r s
e Differentiated s
C products C
o o
m Few Barriers m
p Perfect Entry
Monopolistic p
Competition Oligopoly Monopoly
e Competition e
Some control
t over Prices t
i i
t t
i i
v Examples: Most common form and extremely common in service industry v
e - A lot of non-price competition- physical/style, service, location, status symbol e
Shoes, clothing, gas, restaurants

Called Monopolistic because brands seem to be unique- brand loyalty

Company “monopolizes” its brand
Home
• 3. Oligopoly-
• Characteristic:
– few sellers producing a unique product
– Each firm is affected by the decisions of the rivals
– Imperfect competition
– Sellers can ignore or cooperate or react with one
another or follow a dominant company in terms
price determination and output determination.
– Ignoring one another or having independent
actions can lead to price competition and can
result to drastic reduction in the profit of the
companies
 4 Market Structures
Cooperative Pricing:
Imperfect Competition Oligopoly
Price Leadership
M Collusion L
Few
o Producers have some control over price Producers
Cartel Formation- illegal in US e
but not in world - OPEC
r Producers have market power s
e Similar s
C products Price wars C
o o
m High Barriers m
p Perfect of Entry p
Monopolistic Oligopoly
Competition Monopoly
e Competition e
Some control
t over Prices t
i i
t Preventing lower prices t
i i
v Examples: Arise due to economies of scale rule of thumb (4 top producers supply 60% of v
e outputs) e
Bigger producers take advantage of smaller

Soda (Coke, Pepsi, Cadbury Schweppes) Light bulbs

Airlines (Boeing and Airbus) Tennis Balls- Wilson, Penn, Dunlop, Spalding
Automobiles
Home
• 4. Monopoly-
• Characteristic:
– 1.Single seller- single firm producing a specific
product
– 2.No close substitute- a monopolist product is
unique and there is no close substitute.
– Buyers viewpoint, there are no reasonable
alternatives.
– 3. price maker-the firm exercise a considerable
control over the price because it is responsible for
the total quantity supplied.
 4 Market Structures

Imperfect Competition Monopoly

M One Producer L
o Producers have some control over price e
r Producers have market power Unique s
e Price Setters products s
C C
High Barriers
o of Entry o
m m
p Perfect Monopolistic Substantial p
Competition Oligopoly Monopoly
control over
e Competition e
t Prices t
i i
t t
Examples: The Firm is the Industry, Famous – Standard Oil, Microsoft, Major League
i Baseball
i
v v
e There Anti Trust laws but there are also Legal Monopolies e
Resource monopolies- controlling one resources
Government created monopolies (copyrights and patents, public franchise, Licenses)-
not intended to protect competitors- hair braiding? Preventing lower prices?
Natural Monopolies- when a firm can supply a good or service more efficiently and at
a lower cost- gas, water, electricity, and cable TV- they can take advantage of
economies of scale. Home
 Special type of market structure
• 1. monopsony- a market structure where
there is only one buyer
• 2. Oligopsony- a market structure where
there are few buyers of a product/ service.
• Market Structure Activity
• Assign each group a market structure.
• Each student is to identify a business or organization
that operates in that type of market structure.
• Have each student prepare a brief description of the
following:
• Market Structure:
• Business Name:
• Industry:
• Identify Conditions in Market Structure What are prices
like in this market?
• Identify ways non price competition is used.