MARKET STUCTURE
Reported by:
Marbie C. Ocampo
Elaiza Marie C.Paras
Clifford M.Oruga
What is a Market?
The entire area where buyers and sellers of
a commodity are in close contact and they h
ave one price of same commodity.
Place where there are many buyers and sell
ers .
Actively engaged in buying and selling acts.
Contact through different means of commun
ication like.
What is Market Structure?
those characteristics of a market that
influence the behavior and interaction
of buyers and sellers working in that
market.
is best defined as the organizational
and other characteristics of a market.
These characteristics affect the nature
of competition and pricing.
Type of market structure
influences how a firm behaves:
Pricing
Supply
Barriers to Entry
Efficiency
Competition
Elements of Market
Structure
1. Number and size, Distribution of Firms
2. Entry Conditions
3. Extent of Product Differentiation
DETERMINANTS OF MARKET
STRUCTURE
Freedom of entry and exit
Nature of the product – homo
genous (identical), differentiat
ed?
Control over supply/output
Control over price
Barriers to entry
Market Structure Spectrum
Markets can be divided into categories depending on
degrees of competition and market power.
Market structure is a function of:
1. No. of firms in the market.
2. The nature of the product – differentiated
(heterogeneous) or undifferentiated (homogenous).
3. Extent of information available to market participants.
4. Freedom of entry and exit, existence of barriers to
entry. 7
Forms of Market
1. PERFECT COMPETITION
is a market structure where
an infinitely large number of
buyers and sellers operate
freely and sell a
homogeneous commodity at
a uniform price.
Features of Perfect
Competition
Large number of Buyers and
Sellers
Homogeneous product
FreeEntry in to and Exit from
the market
Perfect knowledge of market
The perfectly competitive
market
The fact that firm is a price taker has import implications for the
shape of the demand curve the firm faces.
Apples on Moore street are 25c each.
At the market level, price is determined as normal (intersection
of demand and supply)
Individual seller faces horizontal demand curve; can sell as
much as like at 25c, will neither increase nor reduce price.
• In a perfectly competitive market marginal revenue (MR)
is equal to price (P) and average revenue (AR).
• Example: Firm does not have to lower price to sell more.
Qty Price TR MR AR
0 10 - - -
1 10 10 10 10
2 10 20 10 10
3 10 30 10 10
4 10 40 10 10
8
Average Revenue (AR) Curve is also
a Demand Curve facing a perfectly
competitive firm, which is perfectly
elastic.
Marginal revenue (MR) The change
in total revenue from the sale of one
additional unit of output.
Monopolistic Competition
14
2. Monopolistic Competition
Monopolistic competition is a situa-
tion in which the market, basically, is
a competitive market but has some el
ements of a monopoly. In this form of
market there are many firms that sell
closely differentiated products.
The examples of this form of market
are Mobiles, Cosmetics, Detergents,
Toothpastes etc.
Features of Monopolistic
Competition
Large number of buyers and
sellers
Product Differentiation
Selling Costs
Free Entry and Exit of firm
Oligopoly
17
3. Oligopoly
The term Oligopoly means
‘Few Sellers’. An Oligopoly is
an industry composed of only
few firms, or a small number of
large firms producing bulk of its
output.
Features of Oligopoly
A Few Firms
Firms are Mutually
Dependent
Barriers to the Entry of
Firms
Non Price Competition
Other notes:
Collusion is formal agreement
between sellers to set specific prices
or to otherwise behave in a
cooperative manner (For example,
OPEC = Organization of the
Petroleum Exporting Countries).
Price-fixing is a form of collusion
where firms establish the price of a
product or service, rather than
allowing it to be determined naturally
through free market
Monopoly
15
4. Monopoly
is the form of market
organization in which there is a
single seller of a commodity for
which there are no close
substitutes.
Features of Monopoly
A Single Seller
No close substitute
Barriers to the entry of new firms
Price discrimination
Abnormal Profits in the Long run
Limited Consumer Choice
Price in Excess of Marginal Cost
Types of Monopoly
1. Natural Monopoly – market
situation where the costs of
production are minimized by
having a single firm produce the
product (e.g. public utility
companies, oil pipeline in Alaska)
2. Geographic Monopoly –
based on absence of other
sellers in a certain geographic
area (e.g. gas station or
drugstore in small town)
Types of Monopoly
3.Technological Monopoly – based on
ownership or control of a manufacturing
method, process or other scientific advance
(e.g. certain pharmaceutical drugs)
a. Patent – exclusive right to manufacture,
use or sell invention (usually good for 20 years).
b. Copyright – authors, art (good for their
lifetime plus 50 years)
4. Government Monopoly - monopoly owned
and operated by the government (e.g.
military, water and sewage)
Summary
26
THANK
YOU!
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