PERFECT COMPETITION • Imperfect competition means the firms within the

industry possess a certain degree of market power or

Perfect competition can be considered as the ideal type
are price-makers.
of market structure as competing firms face the same
price and sell the same products
MONOPOLY
This industry is characterized by having numerous The word monopoly comes from the Greek terms
sellers, no one of which is influential in the industry as “monos”, which means single, and “polein” meaning
they are so many competing within this market seller.
structure. The products sold here are homogeneous or Under monopoly, only a single seller exists. Now,
identical (highly substitutable). This means that the imagine if there is only one seller of the product in the
product sold by one seller is exactly the same (and even market.
looks the same) as the other sellers’.
• If there is only one firm selling the product, it implies
• There is no incentive for the firm to raise its price as
that the product is unique or no available
this will make the buyers easily switch to the
substitute.
competitors, given that they are selling practically
• The reasons why only one firm sells in the market
the same products.
may be due to strict legal or technological
• Lowering the price will not give much benefit to the
requirements that serve as barriers for other firms
firm as it is just one of the many sellers and this
to enter the market.
action will hardly be felt and have impact on the
• Being the only player in the industry is highly
industry.
influential and can definitely dictate on the price and
• If your competitors can already sell the same
output.
product at the same price, there is no point to lower
• This firm definitely possesses market power.
your product’s price.
• In this situation, the firm is said to be a “price-taker” EXAMPLES:
as it does not have any influence on the price and ❖ Utilities such as water or electricity and
output in the whole industry. geographical areas must be specified. For
• Whether it sells less or more, this is not really example, in some areas in the Batangas
significantly felt as there are so many other firms in province, Batelec 2 is the sole firm providing
the industry. electricity, while other areas have Meralco as
• This firm faces a horizontal demand curve, implying provider. Thus, Batelec 2 has monopoly in areas
a perfectly elastic demand for its product. (Review where it is the only provider; the same goes with
Elasticity for details. Meralco.
❖ Where there are only two providers in the same
Does perfect competition exist then? area, the structure is called a duopoly, as in the
The answer is NO. However, agricultural products and case of Smart and Globe for mobile
financial markets are the closest that resemble this type telecommunication.
of market structure.
Can a monopolist still have losses or negative profits? YES
IMPERFECT COMPETITION ❖ monopolist faces a downward-sloping demand
curve, the law of demand still applies.
perfect competition does not really exist in reality. What
❖ even if the monopolists is the only seller, it still
is commonly existing falls under imperfect competition,
cannot really charge an exorbitant price as
which has three types:
consumers’ quantity demanded will be
• Monopoly
affected.
• Oligopoly
❖ given the high capital and technological
• monopolistic competition.
requirements for the products or services
usually provided by a monopolist, it may take
 time before they are able to recover their costs MONOPOLISTIC COMPETITION
of production and earn profits. • Characteristics of both perfect competition and
monopoly, thus the name monopolistic competition.
OLIGOPOLY • Like perfect competition, this industry has many
sellers and entry and exit are free of barriers.
• The prefix “oli” is Greek for “few” so in this type of • Unlike the competitive market, products sold here
industry, there are very few large firms but each of are differentiated or heterogeneous.
them has influence on and dominates the market. • Each firm’s product has its own distinguishing
Example: characteristics like brand, packaging, color, tastes,
❖ petroleum/gasoline industry in the Philippines size, etc. that make the consumers easily identify the
where very few companies exist and the so- competing firms’ products from each other.
called “Big 3”—Petron, Shell and Caltex— • Firms are acting as monopolists as their products are
dominate the industry in terms of pricing and unique in their own way and thus, they are able to
output. exercise some market power.
❖ The airlines, car and media industry
• One distinctive feature of oligopoly is the fierce • Monopolistically competitive firms also face a
competition among the players. Since they are only downward-sloping demand curve. One significant
few, they are always on the lookout for actions and feature of this industry is the product
strategies of their counterparts. differentiation, making advertising an important
• Competition is stiffest under oligopoly. Each action strategy for firms to promote the features of their
or strategy of one firm is always dealt with a counter- products.
strategy by the competitors. • Examples of products under this industry are soaps,
• Products may either be homogeneous or medicines, shampoos, shoes, clothes, milk, schools,
differentiated. Product differentiation may come in hotels, gadgets, etc.
terms of pricing, packaging, variants, flavor, location, • Despite the many varieties of these products
etc. For example, some gasoline products may be available to consumers, they can easily identify one
similar to the other firms’ offerings, but sometimes brand from the other and can cite specific
firms also offer some special brands or formula. characteristics or features of certain brands.
• Firms may resort to collusion. This action is when the
competing firms simply agree to act as a group and
cooperate with each other for their mutual benefit
and to lessen competition among themselves. But
this may be to the disadvantage of the consumers as
what they can agree to do as a group may have to do
with price or output fixing.
• When oligopolists agree to collude with each other,
they are essentially acting as monopolists. In fact,
collusion is considered illegal, at least in the
Philippines. One particular issue among colluding
firms is the (in)complete trust and confidence that
the other firms will fulfill what was agreed upon.
• On the other hand, a cartel is a formal organization
of firms, acting as one in setting the price and output.
• The barriers to entry/exit under oligopoly are
relatively high but not as strict as in monopoly.
Oligopolists also face a downward-sloping demand
curve which means that as they increase their prices,
quantity demanded is negatively affected.