MARKET STRUCTURE FORMS

Dr. Ahmed El Agamy

Head of the Department of Economics and Public Finance

Faculty of Legal Studies

Pharos University
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MARKET DEFINITION
• Consumers (households) demand or
buy goods and services. Producers
(firms) produce, sell or supply goods
and services.
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• Market is a place which consumers and

producers interact with each other and
exchange goods and services.
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PERFECT COMPETITION MARKET

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CONDITIONS OF PERFECT COMPETITION
MARKET

1. There are many firms and many consumers in the

market.
2. All firms sell identical product (homogeneous product).
3. Freedom of entry and exit the market.
4. Perfect information, which means that all firms &
consumers are informed about available products and
prices.
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• According to these conditions, no firm has any control over prices.
So the firm is a price taker, and it determines the produced
quantities which maximize its profit.
• This means that a firm can sell all of the production it wants at the
market price because its size is very small relative to the size of
the market.
• If the firm tried to increase the price above the market price, it
would sell zero unit of the product.
• If the firm tried to decrease the price below the market
equilibrium, its total revenue and profit will decrease.
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PURE MONOPOLY MARKET

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CONDITIONS OF MONOPOLY
MARKET
1. An industry with a single firm that produces no close
substitutes.

2. There are significant barriers to entry, prevent other

firms from entering the industry to compete for profits.
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• According to these conditions :

- The monopolist is the only seller in the market, so the supply of

its product equals the market supply of this product.
- Monopolist cannot determine the price and quantity at the
same time.

-He can determine the price (price maker) and accept the
quantity of the market or alternatively, he can determine the
quantity and accept the price.
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• Why Monopolies Arise?

• The fundamental cause of monopoly is the

existence of barriers to entry. This factor allows

firms to earn supernormal profits in the long run

by making it unprofitable for new firms to enter

the industry.
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MONOPOLISTIC COMPETITION
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CONDITIONS OF MONOPOLISTIC
COMPETITION MARKET
1. Many sellers: there are many firms competing for the same
group of customers.
2. Product differentiation: each firm produces a product that
is at least slightly different from those of other firms. Thus,
rather than being a price taker, as the case of perfect
competition, each firm has low power of affecting the price.
3. Free entry: Firms can enter or exit the market without
restrictions.
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• Monopolistic Competition:

Is a common form of market structure, characterized by a

large number of firms, no barriers to entry, and product

differentiation.
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PRODUCT DIFFERENTIATION
AND ADVERTISING

1.Product Differentiation:
A strategy that firms use to achieve market power.
Accomplished by producing products that have
distinct positive identities in consumers' minds.
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2. Advertising:
When firms sell differentiated products, each firm has an
incentive to advertise in order to attract more buyers to its
particular product.
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OLIGOPOLY MARKET
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CONDITIONS OF OLIGOPOLY
MARKET

1- A few numbers of firms.

2- Products may be homogeneous or differentiated.

3- The behavior of any one firm in an oligopoly depends

to a great extent on the behavior of others.

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ALL KINDS OF OLIGOPOLY HAVE

ONE THING IN COMMON

• The behavior of any given oligopolistic firm

depends on the behavior of the other firms in the
industry comprising the oligopoly.
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THE MARKET EQUILIBRIUM

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1-EQUILIBRIUM:

• A condition that exists when quantity supplied and quantity

demanded are equal, at equilibrium: there is no tendency for price

to change.

So, equilibrium price is determined when:

Qd=Qs
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2- EXCESS SUPPLY:

• Excess supply or surplus exists when:

a - the current price is higher than equilibrium price.

b- Qs> Qd at the current price.

c- excess supply will cause the price to fail to the

equilibrium price (Qd=Qs).

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• When Qs exceeds Qd at the current price, the price

tends to fall. When price falls, Qs is likely to decrease

and Qd is likely to increase until an equilibrium price is

reached where Qs and Qd are equal.

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3. EXCESS DEMAND :

• Excess Demand, or Shortage exists when:

a-The current price is lower than equilibrium price.

b- Qd > Qs at the current price.

c- Excess demand will cause the price to rise up to the

equilibrium price (Qd=Qs).

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• When Qd exceeds Qs, price tends to rise. When the price

in a market rises, Qd falls and Qs rises until an

equilibrium is reached at which Qd and Qs are equal and

excess demand is eliminated.

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DEMAND AND SUPPLY

APPLICATIONS
1. Constraints on the Market:
• Sometimes governments decide to use some mechanism

other than the market system to set prices.

• They impose the price of some products to protect

consumers (price ceiling) or producers (price floor).

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2- Price Ceiling:
1. It is a maximum price; below or lower than the
equilibrium price.
2. It is an obligatory price; not permitted to increase.
3. It is set to protect consumers.
4. The price ceiling creates a shortage (excess
demand).
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• This shortage causes:

1- Queuing: Waiting in lines to distribute goods and

services.

2- Favored customers: Those who receive special

treatment from dealers during situations of excess

demand.
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3- The black market: A market in which illegal trading

takes place, since the sellers sell the available quantity of

a certain good at a price higher than the price ceiling set

by the government to increase their revenue.

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• As a solution for this shortage (excess demand),

government may distribute the limited amount of the

products using ration coupons.

• Ration coupons are tickets or coupons that entitle

individuals to purchase a certain amount of a given

product per month.

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3- Price Floor :
• price floor is a minimum price, set by
government, above the equilibrium
price and is not permitted to fall.
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1- It is a minimum price: above or higher than the

equilibrium price.

2- It is an obligatory price: not permitted to decrease.

3- It is set to protect producers, (agriculture producers).

4- The price floor creates a surplus (excess supply).

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• As a solution for this surplus (excess supply) the

government will be forced to buy the surplus products

resulted from this policy to get rid of the excess supply.

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• Therefore:

• Attempts to bypass equilibrium price in the market and to

use alternative devices are sometimes more-difficult and

more unfair than simple price mechanism.

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THANK YOU ,,,