MARKET STRUCTURE

In economics the term 'Market' can be defined as any arrangement, system

or organization whereby buyers and sellers of goods and services are
brought into contact with one another for the purpose of transacting a
business.
TYPES OF MARKET
Markets could be classified on the basis of the type of commodities bought
and sold or on the basis of the channel of movement or on the basis of
prices. Market based on types of commodities include labour market,
consumer goods market, capital market and money market. Market
according to prices are perfect and imperfect market.
TYPES OF MARKET ACCORDING TO PRICES
1. PERFECT MARKET: A perfect market is a market structure in which
prices are determined by the forces of demand and supply. Demand and
supply operate without interference by the government or its agencies.
Perfect competition exist if the following features or conditions are present
Features of perfect market
1. Homogeneous commodity: The commodities must be identical ie. the
same size, shape and colour. Trade marks or branding must not be used to
differentiate a particular product. For example, tea should be written as tea
and not top tea or Lipton.
2. There is a large number of buyers and sellers of whom has no control over
the ruling price.
3. All buyers must have perfect knowledge of all the market transactions
4. There must be free entry and exit for all buyers and sellers
5. The cost of moving goods is assumed to be zero.
6. All the firms have identical cost structures. They incur the same costs in
producing a commodity.
A perfect market does not exist in reality but is a theoretical concept. Most
markets in existence are imperfect in nature.

2. IMPERFECT MARKET: An imperfect market may be defined as the

market in which prices of goods and services can easily be influenced by the
sellers or buyers. Imperfect market is also called imperfect competition
Features of imperfect market
1. The goods are heterogeneous. The goods sold are not identical and are
altered by the use of trademarks and branding.
2. There are few buyers and sellers, prices can therefore be influenced.
3.There is no free flow of information in the market
4. Preferential treatment exists in an imperfect market. The producer could
sell at lower price to some and at higher prices to others
5. There is no free entry into and exit from the market
6. Transport cost are incurred in moving goods and factors of production.
TYPES OF IMPERFECT MARKET
1. monopolistic competition: This is a market situation where there are
many sellers or producers selling or producing non homogeneous
commodities.
2. Oligopoly: This is a market situation where there are few producers or
sellers of the same commodity
3. Duopoly: This is a market situation in which there are only two sellers or
producers of a commodity
4. Monopsony: This is the type of market in which there is only one buyer
for a product e.g commodity boards
5. Oligopsony: This is a market where there are few buyers and many sellers
of a commodity.

MONOPOLY
Monopoly may be defined as a market situation where there is only one
producer or supplier of a particular good or service that has no substitute.
The monopolist has the power to influence the price of goods to his favour.
The goods sold by a monopolist is normally differentiated.
CAUSES OF MONOPOLY
1. Act of Parliament: This is a legal instrument by the government conferring
special monopoly on some organization to produce or supply certain goods
or services. Eg public corporation
2. Patent law: This law confers on a firm special privilege to protect its new
invention.
3. Natural cause: Nature does not distribute resources evenly as a result
there are some areas that have resources which other areas do not have. eg
crude oil in Niger delta
4. Merging of producers: The merging of producers will make them stronger
to be able to eliminate other competitors in the business
5. Protection of public interest: Deliberate effort to protect public interest by
the government may confer certain monopoly on some firms eg power
holding company
6. Level of technology: When a firm develops high level of technology which
makes goods cheaper this may force other competitors out of production

Advantages of monopoly
1. Over production is reduced: The monopolist estimates demand more
accurately and tries to produce the quantity required by the consumers.
2. Duplication of resources is avoided
3. There may be greater efficiency and full utilisation of productive resources
4. Production costs and prices may be reduced: Since he is the only
producer, he is likely to produce on a larger scale which would lead to lower
cost per unit.
5. Research and invention may be stimulated

Disadvantages of monopoly
1. Exploitation of consumers: This is made possible since he is the only
seller of the commodity
2. It leads to hoarding: The desire for super normal profit by the monopolist
may lead to restriction in output and hoarding
3. Decline in efficiency: Due to lack of competition the monopolist may
become less innovative and enterprising
4. Restriction of consumers choice: The monopolist is the only seller
available so there are no other options of sellers or similar commodities
available
5. Exertion of political interest: Large monopolies could pressurise the
government to pass laws to protect their interests.

Control of monopoly
1. Provision of substitute products: Monopolist exist because their products
have no substitute products.
2. Privatisation: Private individuals should be encouraged to take over
government corporation and agencies in order to eliminate monopoly
3. Stoppage of issuance of patent law: The stoppage will encourage more
people to compete with the inventor
4. Discouraging merging of firms
5. Reduction of tariffs

MARKET STRUCTURE

PRICE AND QUANTITY DETERMINATION UNDER PERFECT

COMPETITION
In a perfect market, also known as competitive market or perfect
competition, the buyers or sellers cannot influence the prices of goods and
services. This is because there are many buyers and sellers or firms in the
market. Price and quantity are determined by the interaction of the forces of
demand and supply. The perfect competitor produces the most profitable
output where his marginal cost equals marginal revenue. Any production
beyond this point will lead to lower profits because the marginal cost of
production will be higher than the marginal revenue.

Short run and long run position of a perfect competitor

In the short run his marginal and average cost of production falls with
increasing output. He can therefore sell at a higher price than his marginal
cost of production thereby earning abnormal profit. The rectangle ABCD in
the diagram below represents the abnormal profits where price or average
revenue is higher than average cost of production.

The perfect competitor can only make normal profits in the long run as he is
in equilibrium. Equilibrium is attained when MC=MR=AC=AR=P=D. He
makes maximum profits at the point where MC=MR.
PRICE AND QUANTITY DETERMINATION UNDER MONOPOLY
A monopolist has the power to control either price or output. This is due to
the fact that he is the only producer or supplier of a particular commodity.
During periods of low demand he can restricts output by leaving some
factors of production idle or by hoarding to maintain high prices. During
periods of high demand he would increase output in order to make high
profits. He makes maximum profits where marginal costs equal marginal
revenue. The monopolist will consider the elasticity of demand for his
commodity to fix prices. If the demand is inelastic he will charge higher
prices but if the demand is elastic he will charge lower prices in order to
earn higher revenue and profits.
Short run and Long run position of a monopolist
The monopolist has a downward sloping demand curve. This makes it
possible for him to make abnormal profits in the short run and in the long
run by either increasing or decreasing supply. In the diagram below EDFG
represents the abnormal profits of the monopolist both in the long run and
in the short run.

OLIGOPOLY
PRICE AND QUANTITY DETERMINATION
If an industry is composed of few firms each selling identical or
homogeneous commodities and having powerful influence on the total
market, the price and output policy of each is likely to affect the other
therefore they will try to promote collusion. The demand curve would be
elastic. The optimum price for a collusive oligopolistic is shown at point G.
The price is identical to the monopoly price, it is above MC and earns the
colluding oligopolistic a handsome monopoly profit.
In case there is product differentiation an oligopolistic can raise or lower his
prices without any fear of losing customers or of immediate reactions from
his rival.