PROBLEMS-answered

2. Outline the characteristics of the different market structures, then, choose one market
structure and make a poster (infographic) about it. Also provide examples specifically in the
Philippine setting.

Economic market structures can be grouped into four categories: perfect

competition, monopolistic competition, oligopoly, and monopoly.

CHARACTERISTICS OF PERFECT COMPETITION

1. a Large Number of Buyers and Sellers:
The first condition is that the number of buyers and sellers must be so large that none of them
individually can influence the industry's price and output as a whole. The market, of a purchaser
or a seller, is just like a drop of water in an ocean.
2. Homogeneity of the Product:
Each firm should produce and sell a homogeneous product so that no buyer has any preference
for the product of any individual seller over others. If goods are homogeneous, then the price
will also be uniform everywhere.
3. Free Entry and Exit of Firms:
The firm should be free to enter or leave the firm. If there is the hope of profit, the firm will
enter into business, and if there is profitability or loss, the firm will leave the industry.
4. Perfect Knowledge of the Market:
Buyers and sellers must possess complete knowledge about the prices at which goods are being
bought and sold and the prices at which others are prepared to buy and sell. It will help in
having uniformity in prices.

5. Perfect Mobility of the Factors of Production and Goods:

There should be perfect mobility of goods and factors between industries. Goods should be free
to move to those places where they can fetch the highest price.
6. Absence of Price Control:
There should be complete openness in buying and selling goods. Here prices are liable to
change freely in response to demand and supply conditions.
7. Perfect Competition among Buyers and Sellers:
In this, purchasers and sellers have complete freedom for bargaining, no restrictions in charging
more or demanding less, and competition must be present.
8. Absence of Transport Cost:
There must be an absence of transport cost. Having less or negligible transport costs will help
the entire market in maintaining uniformity in price.
9. One Price of the Commodity:
There is always one price of the commodity available in the market.
10. Independent Relationship between Buyers and Sellers:
There should not be any attachment between sellers and purchasers in the market. Here, the
seller should not show prick and choose the method to accept the commodity's price. If we see
from the close, we will find that "Perfect Competition is a pure myth in real life."1

9 CHARACTERISTICS OF MONOPOLISTIC COMPETITION

 1. Many buyers and sellers similar to perfect competition

There are many buyers and sellers in the market. However, there are fewer in Monopolistic
Competition. Consumers have a wide variety of choices that other market structures are not
offered, such as a monopoly or oligopoly.
2. Slightly differentiated products
Firms that operate in a monopolistic market have very similar products but are slightly
differentiated to add value over the competition. Clothing markets are a prime example. There
are many types of clothes, each with a somewhat different style. Differentiation can be seen in
four ways: Physical, Marketing, Human capital, and differentiation through distribution.
3. Maximize profits
Firms in a monopolistic market seek to maximize profit. In economics, this is where marginal
costs equal marginal revenue. By doing so, the firm produces right up to the point whereby it
becomes unprofitable to produce any more goods. To produce any further would create a loss
for the firm. So up to this point, the firm is making a profit on producing an additional unit to
sell.
4. Low barriers to entry and exit
New entrants are easily able to enter as there are none or very insignificant barriers to entry.
The cost to start a new business is low, and the risk involved in failing is also comparatively low.

5. Many buyers and sellers

Similar to perfect competition, there are many buyers and sellers in the market. However, there
are fewer in Monopolistic Competition. Consumers have a wide variety of choices. Other
market structures does not offer monopolistic and oligopoly.
6. Potential supernormal profits in the short term 
Monopolistic firms can make supernormal profits once they can benefit from a gap in the
market. For example, looking at clothing, one company may create a new design that has never
been done before.
Suppose it goes down a hit with the customers from the firm benefits from high levels of
demand. These lead to supernormal profits in the short term until other firms become aware.
They then try to make similar products, thereby reducing the level of earnings of the original
firm.

1
Shaikh, S. (2015, November 17). Perfect Competition: Meaning and Characteristics of Perfect Competition.
Retrieved from https://www.economicsdiscussion.net/perfect-competition/perfect-competition-meaning-and-
characteristics-of-perfect-competition/13785
7. Average profits in the long-run
Over the long term, profits shrink as new entrants enter the market to compete. Due to low
barriers to entry, new firms can see any supernormal gains that are made and come in to take
their share. Some firms may benefit from new products in the short term; these supernormal
profits are brought back down again with the introduction of competition.
8. Imperfect information
In perfect competition, the customer can gather information relatively quickly as all products
are the same. At the same time, the cost to collect information in a monopoly structure is
relatively low as there is only one firm.
By contrast, many firms offer slightly different products in monopolistic competition, making
information gathering more time-consuming and costly. Insurance is a prime example – which is
why several comparison sites have come into existence.
9. Non-price competition
The market offers slightly different products, so businesses compete on product/service quality.
It can come through shorter wait times or more attentive employees. At the same time, firms
will also compete on other non-price factors such as location, branding/advertising, and quality 2

FOUR CHARACTERISTICS OF AN OLIGOPOLY INDUSTRY ARE:

1. Few sellers.
 There are just several sellers who control all or most of the sales in the industry.
2. Barriers to entry.
 It is difficult to enter an oligopoly industry and compete as a small start-up company. Oligopoly
firms are large and benefit from economies of scale. It takes considerable know-how and capital
to compete in this industry.

3. Interdependence.
 Oligopoly firms are large relative to the market in which they operate. If one oligopoly firm
changes its price or its marketing strategy, it will significantly impact the rival firm(s). For
instance, if Pepsi lowers its cost by 20 cents per bottle, Coke will be affected. If Coke does not
respond, it will lose significant market share. Therefore, Coke will most likely lower its price,
too.
4. Prevalent advertising.
 Oligopoly firms frequently advertise on a national scale. Many Super Bowl, World Series,
Wimbledon finals, World Cup finals, NBA finals, and NCAA March Madness advertisements are
sponsored by oligopoly firms3

2
Section 3: Characteristics of an Oligopoly Industry. (n.d.). Retrieved from
https://inflateyourmind.com/microeconomics/unit-8-microeconomics/section-3-characteristics-of-an-oligopoly-
industry/
3
Section 3: Characteristics of an Oligopoly Industry. (n.d.). Retrieved from
https://inflateyourmind.com/microeconomics/unit-8-microeconomics/section-3-characteristics-of-an-oligopoly-
industry/
 FOUR KEY CHARACTERISTICS OF MONOPOLY

These are:
(1) a single firm selling all output in a market,
(2) a unique product,
(3) restrictions on entry into and exit out of the industry, and more often than not
(4) specialized information about production techniques unavailable to other potential
producers4

4
(n.d.). Retrieved from https://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=monopoly,
characteristics