Market Structure Overview

WHY STUDY?

HOW TO MAXIMISE PROFITS IN DIFFERENT MARKET STRUCTURES?

PROFITS =TR -TC

HOW TO MAXMISE TR LO2. TR = PXQ

APPROACH

1. CHARACTERISTICS

2. HOW A FIRM DETERMINES PROFIT MAXIMISING P AND Q?

- P AND Q

- PROFITS

3. EFFECTS ON WELFARE OF SOCIETY- ALLOCATIVE AND PRODUCTIVE EFFICIENCY

4. SPECIAL FEATURES

1. ASSUMPTIONS / CHARACTERISTICS
- What are the assumptions?
- Compare the assumptions

Perfect Monopoly Monopolistic Oligopoly

Competition Competition
1 No of firms Many Sole/ only 1 Many Few large
sellers

2 Type of product Homogeneous Unique/ Differentiated Homogeneous

Differentiated
Many No substitute
substitutes

3 Entry barriers No Yes No Yes

Many
competitors

4 Pricing Price taker Price maker Price maker Price maker

2. PROFIT MAXIMISATION
Price and Output decision

Perfect Monopoly Monopolistic Oligopoly

Competition Competition
A Pricing P
1 Demand curve Horizontal Downward Downward Downward
Perfectly sloping sloping. sloping.
elastic More elastic Kinked
than monopoly
2 Market power Price taker Price maker Price maker Price marker

3 Price and revenue P=MR P>MR P>MR P>MR

B Output Q MC =MR MC =MR MC =MR MC=MR

3. EFFECT ON SOCIETY

Social Efficiency
1 Resource allocative Yes. No. No. No.
efficient P= MC P>MC P>MC P>MC

2 Productive efficient Yes. No. No. No.

P=min ATC P>min ATC P>min ATC P>min ATC