MARKET STRUCTURES IN TERMS OF

SELLERS, PRODUCTS, PRICING POWER

AND OTHERS
Review

What is Market Equilibrium?

OBJECTIVES

 Identify the various market structures;

 Differentiate the various market structures in terms of sellers, types of products, entry/exit
to market, pricing power and others;
 Compare the market structures of monopoly and perfect competition in terms of price and
quantity.
What is Market?

 Numerous infrastructures, systems, institution, social relations,

procedures wherein buyers and sellers usually exchange goods and
services.
 Refers to a place or process involved with the exchange of goods and
services.
MARKET STRUCTURE

 Describe the important features of a market, including the number of buyers and sellers,
the product’s uniformity across suppliers, the ease of entry into the market, and the forms
of competition among firms.
 Competitive environment which buyers and sellers operate.
 Competition or rivalry among various sellers in the market
Market Features Question to Ask
1. No. of buyers and seller Are there many, only a few or just one?

2. Product’s uniformity across suppliers Do firms in the market supply identical

products or products differentiated across
firms?

3. Ease of entry into the market Can new firms enter easily or do natural or
artificial barriers block them?

4. Forms of competition among firms Do firms compete based only on prices, or are
advertising and product differences are also
important
 TYPES OF MARKET STRUCTURES

1. PERFECT COMPETITION
 Describes a market structure, where a large
number of small firms compete against each other
and sellers are selling homogeneous products.
 In this type of market structure, sellers have no
control over the price because prices are set by
demand and supply.
 A Perfect Competition has no market power.
PERFECTLY COMPETITIVE MARKETS HAVE THE FOLLOWING
FEATURES:

 There are many buyers and sellers – so many each buys and sells only a tiny fraction of total
market output . This assumption ensures that no individual buyer or seller can influence the price
 Firms produce a standardized product, or a commodity. A commodity is a product that is
identical across suppliers, such as sack of wheat, a sack of corn, or share of company stock. Because
all suppliers offer an identical product, no buyer is willing to pay more for one particular suppliers
product.
 Buyers are fully informed about the price, quality , availability of products, and sellers are
fully informed about the availability of all resources and technology
 Firms can easily enter or leave the industry. There are no obstacles preventing new firms from
entering profitable markets or preventing existing firms from leaving unprofitable markets.
CHARACTERISTICS OF PERFECT
COMPETITIVE MARKETS

 There are many buyers and sellers in the market

 Each company makes a similar product
 Buyers and sellers have access to perfect information about price.
 There are no transaction costs.
 There are no barriers to entry into or exit from market.
 TYPES OF MARKET STRUCTURE

2. MONOPOLY
 Comes from Greek word meaning “one seller”.
 A monopoly is the sole supplier of a product with no close substitutes.
 A monopolist has more market power than does a business in another market structure.
 MARKET POWER – the ability of a firm to raise its price without losing all its sales to rivals.
Example:
Barriers to Entry

 A monopolized market has high barriers to entry, which are restrictions on the entry of
new firms into an industry.
 Allow a monopolist to charge a price above the competitive price. If other firms easily
enter the market, they would increase the market supply and thereby drive the price down
to the competitive level
 There are three types of entry barriers: legal restrictions, economics of sale, and control of
an essential resource.
 TYPES OF ENTRY BARRIERS

 LEGAL RESTRICTIONS

Government can prevent new firms from entering a market by making entry illegal. Patents, license, and other
legal restrictions imposed by the government provide some producers with legal protections against
competition.