MARKET STRUCTURES

APPLIED ECONOMICS
Lissa C. Chuidian
Subject Teacher
 OBJECTIVES
By the end of our discussion, you should be able to
di erentiate market structures in terms of:
➤ number of sellers;
➤ types of products/product di erentiation;
➤ entry to/exit from market;
➤ pricing power;
➤ degree of advertising
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WHAT IS A MARKET?
WHAT IS A MARKET?
WHAT IS A MARKET?
WHAT IS A MARKET?
WHAT IS A MARKET STRUCTURE?
➤ Market- a place where products and services are sold and
bought .
➤ Structure
- the way that something is built, arranged, or
organized.
➤ Marketstructure - is the competitive environment in which
buyers and sellers operate. It is also the nature and degree of
competition among rms operating in the same industry.
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MARKET STRUCTURES MAY BE DETERMINED BY THE FOLLOWING:
➤ number of sellers;
➤ types of products/product di erentiation;
➤ entry/exit to market;
➤ pricing power;
➤ degree of advertising
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THE FOUR BASIC TYPES OF MARKET STRUCTURES
➤ Perfect Competition
➤ Monopolistic Competition
➤ Oligopoly

➤ Monopoly
PERFECT COMPETITION MAY BE CHARACTERIZED BY THE FOLLOWING:
1. There are many buyers and sellers, that each has a negligible impact on
market price, meaning, no single buyer or seller is large enough or powerful
enough to a ect the price of the product.
2. Buyers and sellers deal in homogenous product, meaning , the product is
identical. If products are homogenous or identical, then prices should be
identical as well.
3. Both buyers and sellers are well-informed about the products and the prices,
meaning, they have the information needed to make their decision to buy or
sell. This will help in having uniformity in prices.
4. Market prices and quantity of output are determined exclusively by forces of
demand and supply.
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PERFECT COMPETITION
PERFECT COMPETITION
IMPERFECTLY COMPETITIVE MARKET STRUCTURES
When one or more assumptions of perfect competition is not met,
the market structure becomes imperfectly competitive. The
following are categorized under imperfect competition market
structures:
➤ Monopolistic Competition
➤ Oligopoly
➤ Monopoly
MONOPOLISTIC COMPETITION
MONOPOLISTIC COMPETITION
MONOPOLISTIC COMPETITION MAY BE CHARACTERIZED BY THE FOLLOWING:
1. It is a blend of perfect competition and monopoly.
2. Firms sell di erent products which are highly substitutable but are not perfect
substitutes. Sellers o er heterogenous or di erent products, similar but are not
identical and satisfy the same basic need.
3. Changes in product characteristics to increase appeal using brand, avor, consistency,
and packaging to attract customers.
4. There is easy and free entry to and exit from the market.
5. It is similar to monopoly in such a way that the rm can determine characteristics and
products and has some control over price and quantity. Because the sellers have a
degree of control over the price, they are price-setters or price-makers in this type of
market structure.
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 PRODUCT DIFFERENTIATION
➤ According to investopedia.com, product di erentiation may be
de ned as a marketing strategy that strives to distinguish a
company's products or services from the competition. Most
products in the market today are di erentiated: from cars to
cellular phones, to shampoos and make-up.
Take a look at this marketing strategy of Unilever, di erentiating
their product, Love, Beauty and Planet from the other lines of
hair care products in the market.
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PRODUCT DIFFERENTIATION
OLIGOPOLY
OLIGOPOLY

oligos + polien

➤ oligos meaning little, few, or small, pollen meaning to sell

OLIGOPOLY
 CHARACTERISTICS OF OLIGOPOLY
➤ The industry is dominated by a small number of large rms.
➤ There is collusion, or interdependence among rms. The action
of one a ects the action of the others.
➤ The rms sell either identical or di erentiated products.
➤ The industry has signi cant barriers to entry, meaning, rms
wanting to compete would face di culty because of the many
limitations present.
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MONOPOLY
CHARACTERISTICS OF MONOPOLY
➤ A single seller has control over all the entire supply of raw materials. There are no close
substitutes for the good or service sold by the seller.
➤ Ownership of patent or copyright is invested in a single seller, because the franchise to
operate is granted by the government to only a single rm.
➤ Producer/Seller enjoys economies of scale.
➤ Entry to market is almost impossible because of legal barriers like government
restrictions, patents, and copyrights.
➤ The seller is considered to be the price setter.

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 ECONOMIES OF SCALE
➤What is meant by economies of scale? According to investopedia.com, economies
of scale are cost advantages reaped by companies when production becomes
e cient. Companies can achieve economies of scale by increasing production and
lowering costs. This happens because costs are spread over a larger number of
goods.
In simpler terms, economies of scale is a situation wherein the average cost of
production falls as the operations of the rm gets larger in scope. For instance, in
the city of Puerto Princesa, there is only one provider of electricity, the Palawan
Electric Cooperative or PALECO. Undeniably, the xed cost of PALECO’s
operations is very high. However, since its supplies electricity to all the households
in Puerto Princesa (and in nearby municipalities), it brings their average cost
down.
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 ECONOMIES OF SCALE
Economies of scale occur when a business bene ts from
the size of its operation. As a company gets bigger, it
bene ts from a number of e ciencies. For example, it's far
cheaper and e cient to serve 1,000 customers at a
restaurant than one.
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ECONOMIES OF SCALE

P500M capital

=100 houses
 MARKET STRUCTURES COMPARED
MONOPOLISTIC
PERFECT COMPETITION OLIGOPOLY MONOPOLY
COMPETITION
Number of Large number of buyers
Many sellers Few sellers Single producer/seller
Sellers and sellers

Types of
Homogenous product, Di erentiated product,
Product/ Homogenous or No close substitutes
perfect substitutes close substitutes
Product di erentiated product available
available available
Di erentiation
There is uniformity in The rm exercises
Firms are considered as
price (sellers are price- some control over the Interdependent
Pricing Power price-setters or price-
takers) price (price-setters or decision-making
makers
price-makers)
Entry/Exit to Relatively free entry or Very di cult entry and Almost impossible
Free entry or exit
Market exit exit entry
None, usually, but if
Degree of No advertising or Fair amount of
Heavy advertising there is, for information
Advertising product innovation advertising
purposes
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MARKET STRUCTURES EXAMPLES
WHAT IS THE IMPORTANCE OF KNOWING THE MARKET STRUCTURE?
➤ Market
structures a ect the supply of di erent
commodities in the market.
➤ Market structure is important in that it a ects market
outcomes through its impact on the motivations,
opportunities and decisions of economic actors
participating in the market.
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