Market Structure

the characteristics of the market either

organizational or competitive, that
describes the nature of competition and
the pricing policy followed in
the market.
Market Structures – Key Terms
Barriers to entry are the economic term describing
the existence of obstacles that prevent new
competitors from easily entering an industry or area
of business.
(1) resource ownership
(2) patents and copyrights
(3) government restrictions
(4) high start-up cost.
(5) brand loyalty
Market Structures-Key Terms
Control Over Pricing - Your price
environment determines the level of control
you have over competitive pricing. Price
environments are market-controlled,
company-controlled or government regulated.
Example: A market-controlled environment
shows a higher level of competition and
similar products and little price control by
individual companies.
Market Structures – Key Terms
Number of Sellers: Describes how much
competition exists
Variety of Products: How much product
differentiation exists between
competitors
Highly Competitive Markets
Intro: Highly competitive markets
provide consumers with a wide range
of products that are priced lower.
Supply/Demand determine what products
are produced and available.
Two types of highly competitive markets:
• Perfect competition
• Monopolistic competition
Perfect Competition
Perfect Competition—is an ideal
market structure in which buyers and
sellers each compete directly and fully
under the laws of supply and demand.
Nothing prevents competition
No one buyer/seller controls demand,
supply, or prices.
Perfect Competition
Perfect Competition exists when:
1. Many sellers act independently.
2. Sellers offer identical products (No variety)
3. Sellers can enter or exit the market easily
(No barriers to entry).
4. No control over pricing (must offer the same
or lower price than competitors)
Most efficient market structure
Perfect Competition
Many Sellers—No one seller has
enough power to control the market.
Identical/No Variety Products—
Buyers make purchasing decisions by
comparing “apples to apples.”
Buyers choose a product based on price,
not on unique characteristics.
Perfect Competition
Barriers to Entry – None
Easy Market Entry and Exit—The
freedom to switch from market to market
helps insure no one can dominate market.
Perfect Competition
No Control over pricing

Because firms make identical

products, they are solely competing
on the basis of price.
They are forced to maximum
efficiency in order to offer the lowest
price.
Monopolistic Competition
Monopolistic Competition—Differs
from perfect competition in one key
aspect—sellers offer different rather
than identical products.
Each firm seeks this in order to sell unique
product.
This is more common than perfect
competition.
Monopolistic Competition
Monopolistic Competition exists
when:
1. Many sellers act independently.
2. Sellers offer differentiated products (a
lot variety)
3. Sellers can enter or exit the market
easily (Little barriers to entry).
4. Some control over pricing (strategic
pricing)
Monopolistic Competition
Similarities between Perfect and
Monopolistic competition:
Both compete under same laws of supply
and demand.
Both systems feature many
buyers/sellers acting independently .
Monopolistic Competition
Product Differentiation—Sellers point
out differences between their products and
those of their competition (some variety)
Non-Price Competition—Sellers
compete on a basis other than price.
Why?
1. Physical characteristics
2. Location
3. Service level
4. Advertising
Monopolistic Competition
Profits—The main goal of sellers; By
setting its product apart from the
competition and convincing buyers to
base their decisions on non-price
factors. Therefore: A seller a has
little control over pricing
Monopolistic Competition
None - Low Barriers to entry
No patents (due to patent expiration),
extreme product differentiation, and too
many competitors for any one to
dominate market share