SUBJECT : BUSINESS ECONOMICS

SUBJECT CODE : SBAA1103

UNIT IV – MARKET ANALYSIS

Market analysis - Nature of market - Types of markets and their characteristics - Pricing under
different market structures – Perfect Competition - Monopoly - Oligopoly and Monopolistic
competition - Price discrimination under monopoly competition.

MARKET
Generally the term market as come to signify a place or a geographical area in which goods and
services are bought and sold. In Economics, market refers to a group of buyers and sellers who
involve in the transaction of commodities and services.
According to Prof. Cournout, the term market is “not any particular market place in which things
are bought and sold, but the whole of any region in which buyers and sellers are in such free
intercourse with one another that the price of the same goods tend to equality easily and
quickly”.
According to Prof. F. Benham, Market is ‘any area over which buyers and sellers are in such
close touch with one another, either directly or through dealers, that the prices obtainable in one
part of the market affect the prices paid in other parts’.

CHARACTERISTICS OF A MARKET
1. Existence of buyers and sellers of the commodity.
2. The establishment of contact between the buyers and sellers. Distance is of no
consideration if buyers and sellers could contact each other through the available
communication system like telephone, agents, letter correspondence and Internet.
3. Buyers and sellers deal with the same commodity or variety. Since the market in
economics is identified on the basis of the commodity, similarity of the product is very
essential.
4. There should be a price for the commodity bought and sold in the market.
CLASSIFICATION OF MARKET
1. Markets on the basis of Area: Based on the extent of the market for any product, markets
can be classified into local regional, national and international markets.

a) Local Market: It arises when products or services are sold and bought in the place of their
production. In such markets, the products exchanged are mostly perishable and semi-durable
in nature: For example, Vegetable, fruits etc.

b) Regional Market: It arises when products or services are sold and bought in a restricted
circle. For example, Regional newspaper.

c) National Market: It arises when products and services are sold and bought throughout a
country. For example, Nation-wide market for tea, coffee, cement, electrical goods, some
printed books etc.

d) international Market: It arises when products and services are sold and bought at the
world level. For example, petrol, gold etc.

2. Market on the basis of Time: Alfred Marshall classifies market on the basis of time.

a) Very short period market or Market Period: It refers to that type of market in which
the commodities are perishable and supply of commodities cannot be changed at all. So in a
very short period, the market supply is perfectly inelastic. The price of the commodity
depends on the demand for the product alone. The perishable commodities like flowers are
the best example.

b) Short period: It refers to that period in which supply can be adjusted to a limited extent
by varying the variable factors alone. The short period supply curve is relatively elastic. The
short period price is determined by the interaction of the short-run supply and demand
curves.

c) Long Period: Long period is the time period during which the supply conditions are fully
able to meet the new demand conditions. In the long run, all (both fixed as well as variable)
factors are variable. the market supply is perfectly elastic.

d) Very long Period or Secular Period: The very long run is a situation where technology
and factors beyond the control of a firm can change significantly.
3. Market on the basis f ‘Nature of Transactions’: It refers that the market are classified into

a) Spot Market: It refers to those markets where goods are physically transacted on the spot.

b) Future Markets: it is related to those transactions which involve contracts of the future
date.

4. Markets on the basis of ‘Regulation’: on the basis of regulation, markets are classified into

a) Regulated market: In the former type of markets transactions are statutorily regulated so
as to put an end t unfair practices. Such markets may be established for specific products or a
group of products. Produce and stock exchanges are suitable examples of the regulated
markets.

b) Unregulated Markets: Unregulated or free markets are those where there are no
restrictions in the transactions.

5. Markets on the basis of ‘Volume of Business’: Based on the volume of business transacted,
markets are classified into;

a) Wholesale market: The wholesale market comes into existence when the commodities
are bought and sold in bulk or large quantities. The dealers in this market are knows as the
wholesalers. The wholesaler acts as an intermediary between the producer and the retailer.

b) Retail Market: retail market exists when the commodities are bought and sold in small
quantities. This is the market for ultimate consumers.

6. Market on the basis of ‘Position of Sellers’: On the basis of the position of the sellers in the
chain of marketing, markets are divided into;

a) Primary Market: Manufacturers of commodities constitute the primary market who sell
the products to the wholesalers.

b) Secondary Market: It consists of wholesalers who sell the products in bulk to the
retailers.

c) Terminal Market: Retailers alone constitute the terminal markets who sell the products to
the ultimate consumers.
7. Markets on the basis of type of ‘Competition’: Based on the type of competition, markets
are classified into Perfect competition and Imperfect Competition:

PERFECT COMPETITION
Perfect competition is a market situation where there are infinite number of sellers that no one is
big enough to have any appreciable influence over market price.
According to Joan Robinson, “Perfect competition prevails when the demand for the output of
each producer is perfectly elastic”.
For perfect competition, two conditions are necessary,. There should be a large number of
sellers, and buyers should be aware of the various price offers and their perfect conditions, so
that they have no reason to prefer one seller to another.
FEATURES OF PERFECT COMPETITION MARKET
1. Large Number of Buyers and Sellers: In the perfectly competitive market, There are a large
number of buyers and sellers in a perfect competitive market that neither a single buyer nor a
single seller can influence the price. The price is determined by market forces namely the
demand for and the supply of the product. There will be uniform price in the market. Sellers
accept this price and adjust the quantity produced to maximize their profit. Thus the sellers in
the perfect competitive market are price- takers and quantity adjusters.
2. Homogeneous Product and Uniform Price: The product sold and bought is homogeneous in
nature, in the sense that the units of the product are perfectly substitutable. All the units of
the product are identical (ie) of the same size, shape, colour, quality etc. Therefore, a uniform
price prevails in the market.
3. Perfect knowledge about market conditions : Both buyers and sellers are fully aware of the
current price in the market. Therefore the buyer will not offer high price and the sellers will
not accept a price less than the one prevailing in the market.
4. Free entry and Free exit : There must be complete freedom for the entry of new firms or the
exit of the existing firms from the industry. When the existing firms are earning super-normal
profits, new firms enter into the market. When there is loss in the industry, some firms leave
the industry. The free entry and free exit are possible only in the long run. That is because the
size of the plant cannot be changed in the short run.
5. Perfect mobility of factors of production: The factors of productions should be free to move
from one use to another or from one industry to another easily to get better remuneration.
The assumption of perfect mobility of factors is essential to fulfil the first condition namely
large number of producers in the market.
6. Absence of transport cost: In a perfectly competitive market, it is assumed that there are no
transport costs. Under perfect competition, a commodity is sold at uniform price throughout
the market. If transport cost is incurred, the firms nearer to the market will charge a low price
than the firms far away. Hence it is assumed that there is no transport cost.
7. Absence of Government intervention: There are no government controls or restrictions on
supply, pricing etc. There is also no collusion among buyers or sellers. The price in the
perfectly competitive market is free to change in response to changes in demand and supply
conditions.
 SHORT RUN EQUILIBRIUM PRICE AND OUTPUT DETERMINATION UNDER
PERFECT COMPETITION
1. Since a firm in the perfectly competitive market is a price-taker, it has to adjust its level of
output to maximize its profit. The aim of any producer is to maximize his profit.
2. The short run is a period in which the number and plant size of the firms are fixed. In this
period, the firm can produce more only by increasing the variable inputs.
3. As the entry of new firms or exits of the existing firms are not possible in the short-run, the
firm in the perfectly competitive market can either earn supernormal profit or normal profit
or incur loss in the short period.

SUPER-NORMAL PROFIT
When the average revenue of the firm is greater than its average cost, the firm is earning super-
normal profit.

In above figure, output is measured along the x-axis and price, revenue and cost along the y-axis.
OP is the prevailing price in the market. PL is the demand curve or average and the marginal
revenue curve. SAC and SMC are the short run average and marginal cost curves. The firm is in
equilibrium at point ‘E’ where MR = MC and MC curve cuts MR curve from below at the point
of equilibrium. Therefore the firm will be producing OM level of output. At the OM level of
output ME is the AR and MF is the average cost. The profit per unit of output is EF (the
difference between ME and MF). The total profits earned by the firm will be equal to EF (profit
per unit) multiplied by OM or HF (total output). Thus the total profits will be equal to the area
HFEP. HFEP is the supernormal profits earned by the firm.
 LONG RUN EQUILIBRIUM, PRICE AND OUTPUT DETERMINATION UNDER
PERFECT COMPETITION
In the long run, all the factors are variable. The firms can increase their output by increasing the
number and plant size of the firms. Moreover, new firms can enter the industry and the existing
firms can leave the industry. As a result, all the existing firms will earn only normal profit in the
long run.
If the existing firms earn supernormal profit, the new firms will enter the industry to compete
with the existing firms. As a result, the output produced will increase. When the total output
increases, the demand for factors of production will increase leading to increase in prices of the
factors. This will result in increase in average cost.
On the other side, when the output produced increases, the supply of the product increases. The
demand remaining the same, when the supply of the product increases, the price of the product
comes down. Hence the average revenue will come down. A fall in average revenue and the rise
in average cost will continue till both become equal. (AR = AC). Thus, all the perfectly
competitive firms will earn normal profit in the long run.

Above figure represents long run equilibrium of firm under perfect competition. The firm is in
equilibrium at point S where LMC = MR = AR = LAC. The long run equilibrium output is ON.
The firm is earning just the normal profit. The equilibrium price is OP. If the price rises above
OP, the firm will earn abnormal profit, which will attract new firms into the industry. If the price
is less than OP, there will be loss and the tendency will be to exit. So in the long run equilibrium,
OP will be the price and marginal cost will be equal to average cost and average revenue. Thus
the firm in the long run will earn only normal profit. Competitive firms are in equilibrium at the
minimum point of LAC curve. Operating at the minimum point of LAC curve signifies that the
firm is of optimum size i.e. producing output at the lowest possible average cost.

Advantages of perfect competition

1. There is consumer sovereignty in a perfect competitive market. The consumer is rational and
he has perfect knowledge about the market conditions. Therefore, he will not purchase the
products at a higher price.
2. In the perfectly competitive market, the price is equal to the minimum average cost. It is
beneficial to the consumer.
3. The perfectly competitive firms are price-takers and the products are homogeneous. Therefore
it is not necessary for the producers to incur expenditure on advertisement to promote sales.
This reduces the wastage of resources.
4. In the long run, the perfectly competitive firm is functioning at the optimum level. This means
that maximum economic efficiency in production is achieved. As the actual output produced
by the firm is equal to the optimum output, there is no idle or unused or excess capacity.

MONOPOLY
The word monopoly has been derived from the combination of two words i.e., ‘Mono’ and
‘Poly’. Mono refers to a single and “poly” to seller.
Monopoly is a market structure characterized by a single seller, selling the unique product with
the restriction for a new firm to enter the market.
It is situation where there exists single control over the market producing a commodity having no
substitutes and no possibilities for anyone to enter the industry and compete. Single control may
mean a single producer or a joint stock organization or governmental or quasi-governmental.

FEATURES OF MONOPOLY MARKET

1. Single Seller: There is only one seller; he can control either price or supply of his product. But
he cannot control demand for the product, as there are many buyers.

2. N o close Substitutes: There are no close substitutes for the product. The buyers have no
alternatives or choice. Either they have to buy the product or go without it.
3. Price: The monopolist has control over the supply so as to increase the price. Sometimes he
may adopt price discrimination. He may fix different prices for different sets of consumers. A
monopolist can either fix the price or quantity of output; but he cannot do both, at the same
time.

4. N o Entry: There is no freedom to other producers to enter the market as the monopolist is
enjoying monopoly power. There are strong barriers for new firms to enter. There are legal,
technological, economic and natural obstacles, which may block the entry of new producers.

5. Firm and Industry: Under monopoly, there is no difference between a firm and an industry.
As there is only one firm, that single firm constitutes the whole industry.

Sources of Monopoly Power

1. Natural Monopoly: A monopoly may arise on account of some natural causes. Some
minerals are available only in certain regions. For example, South Africa has the monopoly
of diamonds; nickel in the world is mostly available in Canada and oil in Middle East. This is
natural monopoly.

2. Technical Monopoly : Monopoly power may be enjoyed due to technical reasons. A firm
may have control over raw materials, technical knowledge, special know-how, scientific
secrets and formula that enable a monopolist to produce a commodity. e.g., Coco Cola.

3. Legal Monopoly : Monopoly power is achieved through patent rights, copyright and trade
marks by the producers. This is called legal monopoly.

4. Monopoly by Large Amount of Capital: The manufacture of some goods requires a large
amount of capital or lumpiness of capital. All firms cannot enter the field because they
cannot afford to invest such a large amount of capital. This may give rise to monopoly. For
example, iron and steel industry, railways, etc.

5. State Monopoly : Government will have the sole right of producing and selling some goods.
They are State monopolies. For example, we have public utilities like electricity and
railways. These public utilities are undertaken by the State.
 PRICE & OUTPUT DETERMINATION UNDER MONOPOLY
A monopolist like a perfectly competitive firm tries to maximize his profits. A monopoly firm
faces a downward sloping demand curve, that is, its average revenue curve. The downward
sloping demand curve implies that larger output can be sold only by reducing the price. Its
marginal revenue curve will be below the average revenue curve. The average cost curve is ‘U’
shaped. The monopolist will be in equilibrium when MC = MR and the MC curve cuts the MR
curve from below.
Price & Output Determination under Monopoly

In the above figure, AR is the Average Revenue Curve and MR is the Marginal revenue curve.
AR curve is falling and MR curve lies below AR. The monopolist is in equilibrium at E where
MR = MC. He produces OM units of output and fixes price at OP. At OM output, the average
revenue is MS and average cost MT. Therefore the profit per unit is MS-MT = TS. Total profit is
average profit (TS) multiplied by output (OM), which is equal to HTSP. The monopolist is in
equilibrium at point E and produces OM output at which he is earning maximum profit. The
monopoly price is higher than the marginal revenue and marginal cost.

Advantages of Monopoly Market

1. Monopoly firms have large-scale production possibilities and also can enjoy both internal
and external economies. This will result in the reduction of costs of production. Output can
be sold at low prices. This is beneficial to the consumers.
2. Monopoly firms have vast financial resources which could be used for research and
development. This will enable the firms to innovate quickly.
3. There are a number of weak firms in an industry. These firms can combine together in the
form of monopoly to meet competition. In such a case, market can be expanded.

Disadvantages of Monopoly Market

1. A monopolist always charges a high price, which is higher than the competitive price. Thus a
monopolist exploits the consumers.
2. A monopolist is interested in getting maximum profit. He may restrict the output and raise
prices. Thus, he creates artificial scarcity for his product.
3. A monopolist often charges different prices for the same product from different
consumers. He extracts maximum price according to the ability to pay of different
consumers.
4. A monopolist uses large-scale production and huge resources to promote his own selfish
interest. He may adopt wrong practices to establish absolute monopoly power.
5. In a country dominated by monopolies, wealth is concentrated in the hands of a few. It will
lead to inequality of incomes. This is against the principle of the socialistic pattern of society.

PRICE DISCRIMINATION UNDER MONOPOLY

This is called price discrimination practiced by the monopolist. Under this, the monopolist will
charge different prices from different class of customers. The idea is to get from each customer
whatever profits could be squeezed out of him depending on his purse and intensity of demand.
Types of Price Discrimination
1. Personal Discrimination: The monopolist will charge different prices from different
customers on the basis of their ability to pay. Rich customers will be asked to pay more and
poor customers to pay less. This is possible in specialized services of doctors and lawyers.
2. Place Discrimination: It is adopted by the monopolist having markets in different places for
the same commodity. The locality in which the market is situated will be the criterion in
fixing up the price.
3. Trade discrimination: It can also be called use discrimination. By this, the monopolist will
charge different prices for different types of uses of the same commodity. For example,
electricity will be sold at a cheaper rate for industrial establishment, while it will be charged
at a higher rate for domestic consumption.
Price and Output Determination Under Discrimination Monopoly:

Price discrimination takes place when a given product is sold by a monopolist at more than one
price and these price differences are not justified by cost differences. The price discrimination is
possible under the following conditions.

Conditions:

(1) Monopoly power. The seller of a good must be a monopolist.

(2) Segregation of market. The monopolist must be able to segregate buyers into separate classes
with different price elasticities.

(3) No reselling. There should be no possibility of reselling the good from a tow price market to a
high price market.

Purpose of Price Discrimination:

The purpose of price discrimination by a monopolist is two fold. Firstly, to increase his total
revenue and profits and secondly, to produce a larger output than a non-practicing monopolist.
Determination of price and output under monopolistic competition.

Price discrimination is possible and profitable when the monopolist is able to control the amount
and distribution of supply and the buyers can be separated into different classes having a demand
curve with different elasticities. Let us assume that the monopolist sells his total product in two
sub-markets A and B. Sub-market A has low price elastic demand for the product and the sub-
market B has high price elasticity of demand. The discriminating monopolist will sell a greater
quantity of his product by making a price reduction in market B. He sells lesser commodity in
market A at a price higher than in market B. The monopolist will then earn maximum profit by
price discriminating as is illustrated with the help of diagram given below.

Diagram:

In this figure (16.7) market A and Market B have different elasticity of demand for the product of
the monopolist. The slopes of the AR and MR curves in each market are different depending upon
the elasticity of demand for the commodity. In market A, the elasticity of demand is relatively
inelastic. The rise in price does not cause a much fall in demand. In market B, the demand for the
monopolist product is relatively elastic.

A reduction in price leads greater increase in the demand for the product and adds more to the
revenue. In figure, the combined marginal cost curve (MC) of the total output of the monopolist
intersects the combined marginal revenue curve of the two markets A and B from below at point P.
The best levels of output of the monopolist is OT given by the point P where MC curve cuts the
AR curve from below. The monopolist Is to distribute this equilibrium output OT between the two
markets A and B in such a way that the MR in each market is OP.

In market A, MR equates MC at point F. The monopolist sells output OB at price KB. In market B,
where the demand is more elastic, the monopolist maximizes profit by selling output OB2 at price
K2B2 in market B, where the demand is more elastic, the price K 2B2 is lower than in market A, the
profit of the monopolist is maximum when he sells output of OB at price KB in market A and
output of OB2 at price of K2B2 in market B. The monopolist total profit is shown in the shaded area
APE .

MONOPOLISTIC COMPETITION
Monopolistic competition refers to the market situation in which a large number of sellers are
offering similar but not identical products. As Chamberlin pointed out, it’s a blend of
competition and monopoly. The essential features of monopolistic competition are product
differentiation and existence of many sellers.
The following are some examples of monopolistic competition in the Indian context;
1. Shampoo – sunsilk, Clinic plus, ponds, chick.
2. Tea – Three roses, AVT, brooke bond
3. Tooth paste – Colgate, Close-up, Dabar, Himalaya
4. Soap – Doe, Hamam, Cinthol, Medimix
Characteristics of Monopolistic Competition
1. Large Number of firms/Sellers : Under monopolistic competition, the number of firms
producing a commodity will be very large. Each firm will act independently on the basis of
product differentiation and each firm determines its price-output policies. Any action of the
individual firm in increasing or decreasing the output will have little or no effect on other
firms.
2. Product differentiation: Product differentiation is the essence of monopolistic competition.
Product differentiation is attempted through (a) physical difference; (b) quality difference; (c)
imaginary difference and (d) purchase benefit difference. Product differentiation through
effective advertisement is another method. This is known as sales promotion.
3. Selling Costs: From the discussion of ‘product differentiation’, we can infer that the producer
under monopolistic competition has to incur expenses to popularise his brand. This
expenditure involved in selling the product is called selling cost. According to Prof.
Chamberlin, selling cost is “the cost incurred in order to alter the position or shape of the
demand curve for a product”. Most important form of selling cost is advertisement. Sales
promotion by advertisement is called non-price competition.
4. Freedom of entry and exit of firms: Another important feature is the freedom of any firm to
enter into the field and produce the commodity under its own brand name and any firm can
go out of the field if so chosen. There are no barriers as in the case of monopoly.

DETERMINATION OF EQUILIBRIUM PRICE AND OUTPUT UNDER

MONOPOLISTIC COMPETITION
The firm under monopolistic competition achieves its equilibrium when it’s MC = MR, and
when its MC curve cuts its MR curve from below. If MC is less than MR, the sellers will find it
profitable to expand their output. Each firm will choose that price and output where it will be
maximising its profit.
MC and AC are the short period marginal cost and average cost curves. The sloping down
average revenue and marginal revenue curves are shown as AR and MR. The equilibrium point
is E where MR = MC. The equilibrium output is OM and the price of the product is fixed at OP.
The difference between average cost and average revenue is SQ. The output is OM. So, the
supernormal profit for the firm is shown by the rectangle PQ The different firms in monopolistic
competition may be making either abnormal.

profits or losses in the short period depending on their costs and revenue curves.SR. The firm by
producing OM units of its commodity and selling it at a price of OP per unit realizes the
maximum profit in the short run.

In the long run, if the existing firms earn super normal profit, the entry of new firms will reduce
its share in the market. The average revenue of the product will come down. The demand for
factors of production will increase the cost of production. Hence, the size of the profit will be
reduced. If the existing firms incur losses in the long-run, some of the firms will leave the
industry increasing the share of the existing firms in the market. As the demand for factors
becomes less, the price of factors will come down. This will reduce the cost of production, which
will increase the profit earned by the existing firm. Thus under monopolistic competition, all the
existing firms will earn normal profit in the long run.
OLIGOPOLY
Oligopoly is a market situation in which there are a few firms selling homogeneous or
differentiated products. Examples are oil and gas. It is difficult to pinpoint the number of firms in
‘competition among the few.’ With only a few firms in the market, the action of one firm is
likely to affect the others.

Characteristics of Oligopoly
1. Interdependence: The most important feature of oligopoly is interdependence in decision -
making. Since there are a few firms, each firm closely watches the activities of the other
firm. Any change in price, output, product, etc., by a firm will have a direct effect on the
fortune of its rivals. So an oligopolistic firm must consider not only the market demand for
its product, but also the possible moves of other firms in the industry.
2. Group Behavior: Firms may realize the importance of mutual cooperation. Then they will
have a tendency of collusion. At the same time, the desire of each firm to earn maximum
profit may encourage competitive spirit. Thus, co-operative and collusive trend as well as
competitive trend would prevail in an oligopolistic market.
3. Price Rigidity: Another important feature of oligopoly is price rigidity. Price is sticky or rigid
at the prevailing level due to the fear of reaction from the rival firms. If an oligopolistic firm
lowers its price, the price reduction will be followed by the rival firms. As a result, the firm
loses its profit. Expecting the same kind of reaction, if the oligopolistic firm raises the price,
the rival firms will not follow. This would result in losing customers. In both ways the firm
would face difficulties.

KINKED DEMAND CURVE

American economist Sweezy came up with the kinked demand curve hypothesis to explain the
reason behind this price rigidity under oligopoly.
In an oligopolistic market, firms cannot have a fixed demand curve since it keeps changing as
competitors change the prices/quantity of output. Since an oligopolist is not aware of the demand
curve, economists have designed various price-output models based on the behavior pattern of
other firms in the industry.
In many oligopolist markets, it has been observed that prices tend to remain inflexible for a very
long time. Even in the face of declining costs, they tend to change infrequently. According to the
kinked demand curve hypothesis, the demand curve facing an oligopolist has a kink at the level
of the prevailing price. This kink exists because of two reasons:
1. The segment above the prevailing price level is highly elastic.
2. The segment below the prevailing price level is inelastic.
Assumption of Kinked Demand curve
a. If a firm lowers the price below the prevailing level, then the competitors will follow
him.
b. If a firm increases the price above the prevailing level, then the competitors will not
follow him.
Diagram of Kinked Demand Curve

From the figure, we know that The prevailing price level = P. The firm produces and sells output
= OM. Also, the upper segment (dP) of the demand curve (dD) is elastic. The lower segment
(PD) of the demand curve (dD) is relatively inelastic.
When an oligopolist lowers the price of his product, the competitors feel that if they don’t follow
the price cut, then their customers will leave them and buy from the firm who is offering a lower
price.
Therefore, they lower their prices too in order to maintain their customers. Hence, the lower
portion of the curve is inelastic. It implies that if an oligopolist lowers the price, he can obtain
very little sales.
On the other hand, when a firm increases the price of its product, it experiences a substantial
reduction in sales. The reason is simple – consumers will buy the same/similar product from its
competitors.

DUOPOLY
Duopoly is a special case of the theory of oligopoly in which there are only two sellers. Both the
sellers are completely independent and no agreement exists between them. Even though they are
independent, a change in the price and output of one will affect the other, and may set a chain of
reactions. A seller may, however, assume that his rival is unaffected by what he does, in that case
he takes only his own direct influence on the price.
Characteristics of Duopoly
1. Each seller is fully aware of his rival’s motive and actions.
2. Both sellers may collude (they agree on all matters regarding the sale of the commodity).
3. They may enter into cut-throat competition.
4. There is no product differentiation.
5. They fix the price for their product with a view to maximizing their profit.
 DIFFERENT TYPES OF MARKET STRUCTURE

Type of No. of No. of Nature of Entry condition Size of Price Price policy of the firm
market Sellers Buyers products market

Perfect Large Large Homogenous Free Very small Uniform and Price taker
competition low

Monopoly One Large Unique (no close Strong barriers to entry Large Very high Price maker
substitute)

Monopolistic Many Large Differentiate (but Free Small Moderate Some control over price
competition close substitutes) depending on
consumer’s brand
loyalty

Oligopoly Few Large Homogenous or Entry barriers due to Large High Considerable control
differentiated dominance by few firm over the prices ( price
or due to products tend to be rigid)
differentiation
Duopoly two Large Homogenous or Entry barriers due to Large High Considerable control
differentiated dominance by these over the prices
firm or due to products
differentiation

*******