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Assignment

Assignment

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INSTITUTE OF MANAGEMENT SCIENCES
 
Assignment of Managerial Economics
 
Market Structure in Decision making
 
Submitted To:
Sir Wahid Shah
Submitted By:
Saleha Ahmed BB-09-12Madiha Amin BB-09-68Hira Yasmin BB-09-70Sohaib Iftikhar BB-09-124
Da
te:
19-12-2011
 
Market Structure
Definition of Market:
A market is a set of conditions in which buyers and sellers meet each other for the purpose of exchange of goods and services for money.
Elements of Market:
The essentials of a market are:
y
 
P
resence of goods and services to be exchanged.
y
 
E
xistence of one or more buyers and sellers.
y
 
A place or a region where buyers and sellers of a good get in close touch with eachother.
Market Structure
 
The interconnected characteristics of a market, such as the number andrelative strength of buyers and sellers anddegree of collusion among them, level and forms of competition, extent of product differentiation, and ease of entry into and exit from the market.
 
Market structure is best defined as the organizational and other characteristics of a market. Wefocus on those characteristics which affect the nature of competition and pricing  but it isimportant not to place too much emphasis simply on the market share of the existing firms inan industry.It is also defined simply as the number of firms producing identical products Traditionally, the most important features of market structure are:
y
 
Th
e number of firms
(including the scale and extent of foreign competition)
y
 
Th
e market s
h
are of t
h
e largest firms
(measured by the concentration ratio)
y
 
Th
e nature of costs
(including the potential for firms to exploit economies of scale andalso the presence of sunk costs which affects market contestability in the long term)
y
 
Th
e degree to w
h
ic
h
t
h
e industry is vertically integrated
- vertical integration explainsthe process by which different stages in production and distribution of a product are
 
under the ownership and control of a single enterprise. A good example of verticalintegration is the oil industry, where the major oil companies own the rights to extractfrom oilfields, they run a fleet of tankers, operate refineries and have control of sales attheir own filling stations.
y
 
Th
e extent of product differentiation
(which affects cross-price elasticity of demand)
y
 
Th
e structure of buyers in t
h
e industry
(including the possibility of monophony power)
y
 
Th
e turnover of customers
(sometimes known as market churn)  i.e. how manycustomers are prepared to switch their supplier over a given time period when marketconditions change. The rate of customer churn is affected by the degree of consumer orbrand loyalty and the influence of persuasive advertising and marketing.
T
ypes of Market/Market Model:
 
Markets are classified according to the number of firms in the market and by the commodity tobe exchanged. The economists on the basis of variation in the features of market describe fourmarket models:
y
 
P
erfect Competition.
y
 
Monopoly.
y
 
Monopolistic Competition.
y
 
O
ligopoly.
uick Reference to Basic Market Structures:
Market structure Seller entrybarriersSeller number Buyer entrybarriersBuyer numberPerfectCompetition
N
o Many
N
o Many
Monopoly
Yes
O
ne
N
o Many
MonopolisticCompetition
N
o Many
N
o Many
Oligopoly
Yes Few
N
o Many
 
In the analysis of each market model, it is examined as to what determines the equilibriumprice, output and profit levels for the individual firm and for the industry.

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