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Market Structure

The document discusses different market structures including perfect competition, monopoly, oligopoly, and monopolistic competition. It defines each structure and provides examples and characteristics. Market structure refers to the degree of competition in a market for a particular good or service.

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Monina Cahilig
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266 views60 pages

Market Structure

The document discusses different market structures including perfect competition, monopoly, oligopoly, and monopolistic competition. It defines each structure and provides examples and characteristics. Market structure refers to the degree of competition in a market for a particular good or service.

Uploaded by

Monina Cahilig
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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MARKET STRUCTURE

Objectives:
After studying this chapter, the student
should be able to:
1. Undestand the nature of the Market
Structures.
2. Identify the four (4) basic Market Structures.
3. Enumerate the characteristics of different
basic market structures.
4. Compare critically the differences and
similarities of the basic market structures.
Basically when we hear the word
market, we think of a place where
goods are being bought and sold.
Today we consider the Philippine
Stock Exchange where titles of
ownership of the larget firms in the
Philippines are beng traded as
commodities.
Nevertheless, there is no exact size
for a location to be considered as
market. In economics, market is a
place where buyers and sellers
are exchanging goods and
services with the following
considerations:
1. Types of goods and services
being traded;
2. The number and size of buyers
and sellers in the market; and
3. The degree to which
information can flow freely.
Market Structure – this refers to
the degree of competition in
the market for a particular
product or service.
Is a market situation which
consists of a very large number of
buyers and sellers offering a
homogenous product. Under
such condition, no firm can
affect the market price
Price is determined through the
market demand and supply of the
particular product, since no single
buyer or seller has any real control
over price.
1. Large Number of Buyers and
Seller
a) Each Buyer is so significant that
he cannot have special
priviledges from the seller.
b) Each Seller produces a small
volume of goods that he
cannot dictate price. A price
taker of what the market
dictates as per demand and
supply of the commodity. The
individual seller accepts the
price and he decides on how
many he would like to sell.
2. Homogenous Product
these products are identical.
There abounds close substitute for
the good giving the consumers a
choice of what brand he would
purchase.
3. Free mobility of Resources
a business under this market
condition can move in and out of
the market at any time in
response to price changes. This
implies the following condition:
a. Labour must be moblie
geographically and
occupationally.
b. Inputs are not owned by an
owner
c. Any firm who would like to join
the market and decides to
leave is free to do so.
1. The Total Revenue (TR) is the
sum of money receives after
selling the product, the price
being constant. The Total
Revenue varies directly with
output level. The more product it
produces the more revenue
obtained. TR = P * Q
2. Average Revenue (AR) is the
price of product. AR = TR / Q
3. Marginal Revenue (MR) is the
additional revenue added to TR
by obtaining added unit of the
firm’s output. MR = AR =Price of
Product
Market Price Units Sold TR MR AR

10 10 100 10 10

10 15 150 10 10

10 20 200 10 10

10 30 300 10 10

10 50 500 10 10
Examples:
a. Basic needs like food: rice,
sugar, eggs, chicken,fish and
meat, fish, clothing: unbranded t-
shirts, pants and socks
Is a market situation wherein the
conditions necessary for perfect
competition are not satisfied.
Under this situation, there are few
sellers which are enough to
affect the market price.
Imperfect competition only
happens when the firm becomes
relatively larger in connection
with market size. The essential
and distinguishing feature of this
type is the power the individual
firm has to determine prices by
adjusting its sales, without having
a complete power of a
monopolist.
MONOPOLY
This term comes from the greek
words “monos” which means
‘one’ and “polein” which means
‘to sell’. Under this situation, there
is only one seller of goods or
services.
Monopoly is characterized by
only one producer in the industry,
hence, there is lack of economic
competition and viable substitute
for the goods and services that
they provide. The monopolist can
influence and has considerable
control over the price(considered
as a price maker).
A monopoly should be
distinguished from a cartel.
Cartel – refers to a market
situation in which firms agree to
cooperate with one another to
behave as if they were a single
firm and thus eliminate
competitive behavior among
them.
The following are the sources of
monopoly:
1. There is only one producer or
seller of goods and only one
provider of services in the
market.
2. New firms find extreme
difficulty in entering the market.
The existing monopolist is
considered giant in its field or
industry.
3. There is no available substitute
so that a product or service is
considered unique.
4. It controls the total supply of
raw materials in the industry
and has control over price.
5. It owns a patent or copyright.
6. Its operations are under
economics of scale.
It is not easy to enter into the
monopoly industry because of:

Barrier to Entry – hindrances in


moving in the market.
1. Economic in Nature – in some
industries, consumers are best
served by a single firm and not
profitable for some other firms
to enter the field of a
monopolist.
2. Institutional or Artificial Barriers:
a) Exclusive Ownership
b) Patent Rights and Copy Rights
c) Market Franchise
d) Cut throat competition – price
cutting
 Simple Monopolies – charges
the same price to all customers
for the same commodity

Example: Kilowatt used


 Discriminating Monopolies –
charges different prices to
different customers for the same
commodity.

Example: Airtime for domestic and


overseas
Classifications of Monopoly
Natural Monopoly – is a market
situation where a single firm can
supply the entire market due to
the fundamental cost structure of
the industry.
Legal Monopoly – sometimes
called as “de jure monopoly”, a
form of monopoly which the
government grants to a private
individual or firm over the
product or service.
Coercive Monopoly – a form of
monopoly whose existence as
the sole producer and distributor
of goods and services is by
means of coercion (legal or
illegal),so that most of the time, it
violates the principle of free
market just to avoid competition.
1. Average Revenue Curve is
Demand Curve because it
shows the relation between
price and quantity consumed.
2. The monopolist demand curve
is sloping downward. For his
commodity to be sold he has
to lower his price. Since he has
to sell an extra unit MR is less
than AR and MR curve is below
AR, downward sloping and is
twice as steep.
3. As the units sold are increasing
and TR is increasing the price and
MR is decreasing.
4. As you increase outputs, you laso
increase TC. If TC is lower than
market price, profits are still
attainable even if you lower the
price at its original. When TC is
already higher than market price
it is the beginning of high profit.
5. TR falls as quantity increases
because of decrease in price.
6. To maximize profit monopolist
should increase revenue,
reduce cost of output and TC
should be higher than market
price.
Market Price UNITS SOLD TR MR TC PROFITS

10 1 10 2 8

9 2 18 8 2.75 16.25

8 3 24 6 3 21

6 4 24 0 3.25 20.75

5 5 25 -1 4 21

3 9 27 2 1 26

2 10 20 -7 5 15

1 12 12 -8 5.25 6.75
OLIGOPOLY
Comes from the greek words
“oligo” which means ‘few’ and
“polein” which means ‘to sell’.
Oligopoly is a market structure in
which a small number of firms has
the large majority of market
share.
There is no precise upper limit to
the number of firms, but the
number must be low enough that
the actions of one firm significantly
impact and influence the others.
Characteristics of Oligopoly
1. There is a small number of firms
in the market selling
differentiated or identical
products.
2. The firm has control over price
because of the small number
of firms providing the entire
supply of a certain product.
3. There is an extreme difficulty for
new competitors to enter
market.
Oligopolies are often distinguished
based on the products they sell in
the market.

Pure Oligopoly – those are few


sellers that produce identical
products.
it is common in market situation
where the products sold are fairly
homogeneous.
Ex. *Cement
*Sugar
*Other Raw Materials
Differentiated Oligopoly – refers to
a few sellers of differentiated
products where value
characteristics or qualities of
goods vary.
Ex. *Telecommunications (Digital,
Globe, Smart) airline and shipping
industries.
Some instances give rise to a
situation where only two
producers exist in a given market.
This is commonly known as
duopoly. This type of oligopoly
market is seen in the television
and radio industries in which both
operate in the samelocality
although technically, they are
one company.
Types of Organization of
Oligopoly
Cartel – is a formal agreement
among oligopolists to set up a
monopoly price, allocate
output, and share profit among
members.
Collusion – is a formal or an
informal agreement among
oligopolists to adopt policies
that will restrict or reduce the
level of competition in the
market.
MONOPOLISTIC COMPETITION
This is a market situation in which
there are many sellers producing
highly differentiated products.
Under this condition, there is
competition because many
sellers offer products that are
close, but not perfect, substitiutes
for each other.
Monopolistic competition has
similar characteristics with perfect
competition but in addition to
product differentiation. Product
differentiation creates some
degree of market power to
monopolistic competitors, since
each competitor can somewhat
raise price without losing all its
customers. Industries producing
personal care products, cars,
apprel, furniture, medicine, and
the like are good examples of
monopolistic competition.
Essential characteristics of
monopolistic competition are:
1. A large number of buyers and
sellers in a given market act
independently.
2. There is a limited control of
price because of product
differentiation.
3. Sellers offer differentiated or
similar products but not
identical products.
4. New firms can enter the market
easily. However, there is a
greater competition in the
sense that new firms have to
offer better features of their
products.
5. Competition in the market
focuses not only on price but
also on product variation and
promotion.
Reference
Economics Concepts and Principles (with Agrarian Reform
and Taxation)
Author: Gabay, Bon Kristoffer G.
Pages: 93-100

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