Eco1-Managerial Economics

Module 4
TOPIC 4- Market Structures
I. Learning Outcome:
1.) Familiarize with the concept of a market
2.) Distinguish and differentiate the various market structures from each other in terms of
their characteristics
3.) Summarize the characteristics of each market structure according to the types of products
sold, the number of buyer and sellers, barrier to entry or exit, and relative price influence
in their respective industries.

II. Pre-Assessment:
Multiple Choices: Choose the correct answer from the given options.
C.1.) Monopoly is a market structure mainly characterized by
a. single buyer c. a single seller
b. few buyers d. few sellers
B. 2.) Oligopoly is a market structure mainly characterized by
a. single buyer c. a single seller
b. few buyers d. few sellers
A. 3.) Monopolistic Competition is a market structure that has
a. homogenous products c. heterogeneous & slightly differentiated products
b. standardized products d. none of the above
A. 4.) Sellers in an industry of Pure Competition are usually
a. price takers c. both a & b
b. price makers d. neither a nor b
C. 5.) Monopsony is a market structure very similar to a
a. monopoly c. pure competition
b. oligopoly d. monopolistic competition
D. 6.) It occurs when large number of sellers and procurers of a good are present in the market,
making the goods almost always available.
a. oligopsony c. pure competition
b. monopsony d. monopolistc competition
C. 7.) ______________ products are found in a perfect competition type of market structures
a. heterogeneous & standardized c. different
b. homogeneous d. branded
A. 8.) Standardized products are describes as products _____________.
a. having similar characteristics and each one does not significant differ from the oter
products
b. have the same brad, but may not be of the same kind
c. produce by only one company
d. all of the above

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 C. 9.) _____________a market structure where in influence over pricing and output decisions
a. perfect completion c. oligopsony
b. monopsony d. monopoly
D. 10.) Monopoly is a market structure mainly characterized by
a. unique products c. standardized products
b. homogeneous products d. differentiated products

III. Lesson Opening:

The forces of supply and demand need a mechanism that will facilitate exchanges
between them. The mechanism, which is called the market. Market is the place where
you can buy the goods and services you want, where buyers and sellers transact. The
prices of these goods and services are determined by the “forces” in the market and this
where a market structure comes in, or the competitive environment wherein buyers and
sellers arrive at a price in exchanging their goods and services deemed mutually
beneficial.

IV. Discussion Proper:

When buyers wishing to exchange money for a good or service are in contact with
sellers wishing to exchange goods and services for money, a market exists. A market may
be confined to a specific geographical area, like a certain town where buyers and sellers
meet. In a modern industrial economy contains many varieties of market structures,
which may be classified into regular market structures and special market structures.
The regular market structures are perfect competition, monopoly, oligopoly and
monopolistic competition or differentiated competition.

1.) Perfect competition – occurs when a large number of sellers in producers of a good
are present in the market, making the goods almost always available. The tendency in
this market structure is that there are so many firms that none of them can
individually affect the price of the product. This is a more common market structure
in many modern economies today.
Usually, homogeneous or standardized products are found in this market
structure. These products are so called homogeneous in the sense that they have
similar characteristics and each one does not significantly differ from the other
products. In many instances, these products do not carry individual brands.
Agricultural products are very good examples of these.
2.) Monopoly-in which a single firm produces the entire available products in an industry
is a market structure that is dominated by that firm. Monopoly is a special case of
imperfect competition. It is a situation in which here is only one seller in a market.
The monopolist firm usually has a very great influence over pricing and output
decisions. Such cases are rare in most market economics today.
Some regional and local firms tend to behave as a monopoly in their respective
immediate markets, especially when these firms tend to be new and the first to offer a
good or service in a specific area.
These include local or regional cable operators, power companies and water
utility firms that tend not to have competition in their area due to prohibitive costs of

operation. Monopolies may also be classified either as a natural monopoly or a

legislated monopoly. A natural monopoly arises in the market due to being sole

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 producer with technical advantages, such as the economics of scale (lower cost a
great production quantities) that come with greater firm size. A legislated monopoly,
on the other hand is created by the government legislation to career patents, licensing,
franchising provisions, or regulations on the rich. Only one firm is allowed to produce
and market a commodity in a specific regional and market. A natural monopoly may
also be governed by legislation but enjoys more freedom than a legislated monopoly,
since it is not totally own and is run mostly by people in the government.

3.) Oligopoly- is that market structure characterized by very few sellers in the market
making the product (s) available for the consuming public.

Since there are very few of these sellers, their price influence is great. Regulation
is more often than not necessary in an oligopolistic industry, due to the natural
tendency of collusion among these firms. These government regulations are often
geared towards encouraging these few firms to complete rather than to collude. The
oil and telecommunication industries in the Philippines are examples of this market
structure.

Unlike in monopolistic competition, each firm in oligopoly is very aware of the

others. Pricing and output decisions are based, in part, on predictions of the other
firms’ reactions. If rivals cooperate in an oligopoly, they can achieve a joint
monopoly solution. One cooperative method is to form a cartel to restrict individual
and collective output. In a country like the Philippines forming a cartel is punishable
by law.

4.) Monopolistic competition- is a market structure in which there are enough sellers or
producers and that each acts independently of the others, but are few enough that each
tends to have a “monopoly” of its own specific target market segments. The theory of
monopolistic competition is applied to the analysis of differentiated products.
Differentiated products are those that end to be similar of nature and purpose, but
are used differently and are generally preferred by specific groups of consumers. A
very good example for this type of market structure are non-food traditional products
such as shampoo, soaps, and other cleaners. Although these products (and brands)
belong to the same category, each product tends to have its non-patrons, thereby
allowing companies to have some “monopoly” over their own respective markets.
There are two special types of market structures since they are not commonly found
in many industries nor economies.

5.) Monopsony-is very similar to a monopoly, except that instead of having a single
seller, there is a single buyer in the industry. Some governments tend to participate
his in specific and sensitive industries the purchase of armaments, nuclear technology
and the like tend to be the monopoly of many governments, assuring that these
products will not be readily available to the public for national security reasons and
measures. Although there are private groups that also buy these items secretly from
government they tend to be more of illegal than legal groups.

6.) Oligopsony-is very similar to an oligopoly, except that instead of having a few sellers
in the industry, there are only very few buyers of a particular product. Usually, there
exists a mutually beneficial relationship between oligopolists and oligopsonists. This

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 means that there are very few sellers of a product specifically being made for very
few buyers of the same product. Transportation companies such as airlines and
shipping lines tend to fall into industries with this market structure.
7.) Duopoly- This is a kind of market model wherein there are only two seller in the
market.
Characteristics pf Market Structures:
Type of Types of Number of Number of Barriers Entry Relative
Market Products sold Sellers in the Buyers in the or Exit from Influence over
Structures in the Industry Industry Industry the Industrythe Price of the
Products
Pure homogeneous many many none easy to little or no
Competition or standardized enter influence
price takers
Pure unique one many very high absolute
Monopoly influence
seller is price
maker
Monopolistic slightly many many low strong
Computation differentiated influence but
usually a price
taker
Oligopoly slightly few many very high very strong
differentiated influence
seller usually
price maker
with the
others
Monopsony usually unique few one very high absolute
uniform influence
buyer is price
maker
Oligopsony slightly few to many few very high very strong
differentiated influence
buyer usually
a price maker
Duopoly unique two sellers few none easy to less control
enter but possible
price maker

V. Summary /Generalization:
-The market is an important mechanism that is used to facilitate transactions between the
forces of supply and demand.

-Under perfect competition and monopolistic competition, price is determined by the

forces of supply and demand. In a monopoly, price is determined by the sole seller, In an
oligopoly, the price is set by the oligopolists.

Note: Generate your own generalization at least two.

A market is a place where buyers and sellers can meet to facilitate the exchange or transaction
of goods and services. Other examples include the black market, auction markets, and

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 financial markets. Markets establish the prices of goods and services that are determined by
supply and demand.

Competition is the rivalry between companies selling similar products and services with the
goal of achieving revenue, profit, and market share growth. Market competition motivates
companies to increase sales volume.
VI. Post Assessment: (Essay 2 points each)

1. Is a designated place a requisite for a market to exist?

Yes. Because market is a place where two parties can gather to facilitate the
exchange of goods and services. The parties involved are usually buyers and
sellers.
2. Pure competition may be described to be on one end of a pole, while monopoly is on the
other end. Why is this so?
In pure competition there is a large number of sellers, so that each one cannot affect the
market price by changing his supply. In monopoly there is a single seller in the market.
In pure competition entry (and exit) is free in the sense that there are no barriers to entry.
3. In a monopolistic competition, why is it necessary for a firm to differentiate its
products?
By differentiating its products, firms in a monopolistically competitive market ensure
that its products are imperfect substitutes for each other. As a result, a business that
works on its branding can increase its prices without risking its consumer base.
4. How is pricing undertaken in pure competition?
In perfect competition the firms and sellers are price takers. The price in perfect
competition is determined by market forces which is demand and supply.
5. Can a monopolist set a high price for his product and still enjoy a high level of demand?
Monopolies have much more power than firms normally would in competitive markets,
but they still face limits determined by demand for a product.
VII. Feedback:
I learned a lot on this module. It helps me how to recognize our market and how it works.

VIII. References:
Principles of Economics by:
 Azarcon, Marzo, Navarro
 Resurreccion, Paca
 Degay, Sison, Rojo

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Managerial Economics Deosdora D. Nario, LPT