MARKET STRUCTURE

Presented by:Saachi Mahajan miet jammu

MARKET STRUCTURE
Market structure identifies how a market is made up in terms of: The number of firms in the industry. The nature of the product produced. The degree to which the industry is vertically integrated. The degree to which the firm can influence price. Firms behaviour pricing strategies, non-price competition, output levels.

MARKET STRUCTURE
Importance: Degree of competition affects the consumer will it benefit the consumer or not? Impacts on the performance and behaviour of the company/companies involved.

Market Structure
Perfect Competition Pure Monopoly

Monopolistic Competition

Oligopoly

Monopoly

The further right on the scale, the greater the degree of monopoly power exercised by the firm.

PERFECT COMPETITION
The term perfect competition refers to a set of condition prevailing in the market. In other words, the model of a market that was a pet of the classical and neo classical was perfect competition. Under perfect competition, a large number of firms compete against each other. Therefore, The degree of competition under perfect competition is close to one.

 Examples of perfect competition: Financial markets stock exchange, currency markets, bond markets Agriculture

Characteristics of perfect competition.

A large number of seller and buyer. Homogenous product. Perfect mobility of factor of production Free entry and free exit of firms. Perfect knowledge No government intervention.ss

IMPERFECT COMPETITION
Imperfect Competition consist of many markets categories ranging from two sellers to a large number of buyers and sellers.

Types of Imperfect Competition

Monopoly Oligopoly Monopolistic

MONOPOLOSTIC
Monopolistic Competition where, degree of competition is less. Under it the degree of freedom depend largely on the number of firms and the level of product differentiation. Some charactertics of Monopolistic Competition: Many buyers and sellers. Products differentiated. Relatively free entry and exit. EXAMPLES:Resturants,Profession,Plumbers etc.

OLIGOPOLY
Oligopoly-Oligopoly, where degree of competition is quiet low, lower than under monopolistic competition. Some characteristics: Industry dominated by small number of large firms. Many firms may make up the industry. Higher barriers to enter. Product could be highly differentiated branding or homogenous. High degree of independence between firms. EXAMPLES: Super market, banking industry, chemicals etc.

MONOPOLY
The word monopoly is composed of two words; 1. mono, which means single 2. Poly, which means a seller. Thus monopoly is a form of market organization for a commodity in which there is one seller of the commodity. There is no close substitute for the commodity sold by the only seller. The seller has full control over the supply of the commodity. In monopoly the degree of competition is close to nil. The monopolist is a price-maker. Acc. To P.C. Dooley, "A monopolist is a market with one seller.

FEATURES OF MONOPOLY
One seller and a large number of buyers. No close substitute. Restriction on the entry of the new firms. Informative selling costs. Firm controls price OR output/supply. Abnormal profits in long run. Consumer choice limited.

CAUSES AND KINDS

Some monopolies are created by law in the public interest. Eg: telephone services, Indian Railways, State Roadways etc. are public monopoly. The state may also create monopolies in private sector also through license and patent. Control over raw material, secret methods of production or specialised skills which might give him monopoly power. E.g. : De Beers company of South Africa owns most of the diamond mines there and controls the prices of diamonds by restricting productions. The necessity of having large resources, as is the case where the minimum efficient scale of operations is very large, may often create monopoly. Ignorance, laziness, and prejudice of the buyers may create monopoly in favour of a particular producer.

ADVANTAGES OF MONOPOLY:
Encourages R&D Encourages innovation Development of some products not likely without some guarantee of monopoly in production Economies of scale can be gained consumer may benefit

Disadvantages of Monopoly
Exploitation of consumers Higher prices. Potential for supply to be limited Less choice Potential of inefficiency. Ban to the entry of other firms in the market.

PRICING AND OUTPUT DECISION : SHORT-RUN

In short-run monopolist may be in three positions during equilibrium : Abnormal profit when AR>AC; Normal profit when AR=AC; Minimum loss when AR<AC (Theoretical possibility)

Pricing and Output decisions Long-Run

Monopoly gets opportunity to resize its firm. Expansion of the plant size depends upon the following conditions:a)Size of the market. b)Expected economic profit. c)Risk of inviting legal restrictions.

Price and Output determination long-run

AR and MR curves shows the market demand and marginal revenue conditions . LAC and LMC show the long-run cost conditions. LMC and MR intersect at point P giving output OQ at price P Q Total monopoly profit is LMSP .
2
2 2. 2

 Total profit in short-run is shown by JP TK which is smaller than the long-run profit area LP SM. Profit in the short-run and long-run depends upon the cost and revenue conditions.
1 2

Price Discrimination Under Monopoly

To sell a product at the same or different price. Based on their age, Income, Location, Quantity purchased, location etc. OR Also same price being charged in different areas but the production is not same.

 E.g.:1. Physicians and lawyers charges on the basis of customers ability to pay. 2.Railways and airlines charges less to children's and students and the class of travelers. 3.Different rates for cinema shows etc.