Market structures

Objectives
• *Differentiate various market structures in terms of:
a. number of sellers
b. types of products
c. entry/exit to market
d. pricing power
e. others
Competition- rivalry among buyers and sellers in the
market.
Varying degrees of competition in the market that depend
on the following factor:
1. Number and size of buyers and sellers
2. Similarity or the type of product bought and sold
3. Degree of the mobility of resources
4. Entry and exit of firms and input owners
5. Degree of knowledge of economic agents regarding
prices, cost, and demand and supply conditions.
 Perfect competition
 Is a market structure characterised by a complete
absense of rivalry among the individual firms.
1. Plurality
There are many buyers and sellers who are too small to
individually affect the price. Change in the output of a single
firm will not perceptibly affect the market price of the good.
No single buyers can influence the price because he/she
purchases only a small amount. Buyers cannot extract
quantity discounts and credit term.
2. Homogeneity
Products are perfectly similar or standardized such that every
consumer has no preference for one seller over another.
3. Perfect mobility
Product and resources are perfectly mobile in geographic space, as
well as convertible to other uses.
4. Perfect information
There is perfect knowledge of economic agents of market
conditions such as present and future prices, cost, and economic
opportunities.
5. Market forces
Market price and quantity of output are freely determined by supply
and demand.
 Imperfect competition
Monopoly
• Exist when a single firm that sells in the market has no close
substitutes.
Monopoly can exist for the ff. reasons:
1. A single seller has control of the entire supply of raw
materials.
2. Ownership of patent or copyright is invested in a single seller.
3. The producer enjoys economies of scale.
4. The grant of a government franchise to a single firm.
• A monopolist enjoys a lot of power; however that is not
unlimited because of indirect competition from other
goods competing for the consumers’ purchasing power.
• Monopolist maximizes price and minimizes output to
maximixe profit.
• Monopoly can easily exist when there are barriers to
entry.
• The firm is free to determine its output level and its
price.
• monopolist faces a downward-sloping demand curve.
 Monopolistic competition
• is a market structure in which many firms can freely enter and exit the market but sell
products that are differentiated.
Characteristics:
1. Firms sell differentiated products, which are highly substitutable but are not perfect
substitutes.
2. There are free entry and exit in the market, which enable the existence of many sellers.
3. Many sellers offers heterogeneous or differentiated products.
4. It is blend of competition and monopoly.
5. Changes in product characteristics are made to increase appeal using brand, flavor,
consistency, and packaging as a means to attract costumers.
6. It is similar to monopoly in that the firm can determine the characteristics of the product
and has some control over price and quantity.
 Monopolistic competition faces a downward-sloping demand curved.
 Firm tends to engage in nonprice competition.
 Oligopoly
• Market dominated by small number of strategically
interacting firms.
Characteristics:
1. The action of each firm affects other firms.
2. There is strong interdependence among firms.
 These strategically interacting firms try to raise profits by
colluding with one another to raise prices to the detriment
of consumers.
 Oligopolies may exist due to the existence of barriers.
 Significance of Market Structure
 The type of market structure in which the business
operates will determine the amount of market power or
control the business owner will enjoy. Greater market
power means greater ability to control prices and
differentiate the products one offers for sale, thus leading
to opportunities for more profits.
 END OF PRESENTATION
Assignment: