UNIT-III

Market
Structures
Managerial Economics and
Financial Analysis

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 Market
 Place where there are many buyers and sellers .

 Actively engaged in buying and selling acts.

 Contact through different means of communication

like letters, telephone, mails etc.

 It does not mean a particular place but the entire area where
buyers and sellers of a commodity are in close contact, and
they have one price of same commodity.

 Market is defined as a place or point at which buyers and

sellers negotiate their exchange of well-defined products or
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services.
 "arrangement of establishing relationship
between buyers and sellers of the
commodities"
 "the term market refers not necessarily to Market
a place but always to a commodity and
the buyers and sellers who are in direct
competitions with one another"
 By Prof.Chapman
 "any area over which buyers and sellers
are in close touch with one another,
either directly or through dealers, that
the price obtainable in one part of the
market affects the prices paid in other
parts".
 By Benham
 Four major components of market
Buyer
Components
Seller
of Market
Product and its
Price
  By area
 Local

 Regional

 National

 international

 By nature of transactions
Criteria for  Spot

 Future
Market  By the volume of the Business
 Wholesale
Classification  Retail

 Based on Time
 Very Short

 Short

 Long

 Very Long
  By Status of Sellers
 Primary Market
 Secondary Market
 Terminal Market

 By Regulation
 Regulated

Criteria for  Unregulated

• Based on Functions
• General market
Market • Specialised market
• Marketing by samples
Classification • Marketing by grading

• Based on Nature of Commodity

• Product Market
• Stock Market (stock of shares and bonds)
• Bullion Market (metallic trading-Gold, silver)
 Based on Legality
 Legal Market

 Illegal Market

 Based on Market Structure

 Perfect Competition

 Simple Monopoly
Criteria for  Discriminating Monopoly

Market  Monopolistic Competition

 Duopoly
Classification  Oligopoly

 Bilateral Monopoly

 Monopsony

 Oligopsony
 Classification by the “Area"

 Local
 Ex-Milk, Ghee etc.

 Regional
Classification  Ex-Lahariya in Rajasthan

of Markets  National and International

 Ex- Market of sarees, dhotis, Gandhi cap,

 Nehru cap

 International
 Ex- Market for gold, silver
 Classification by the nature of transactions
 Spot Market
 Future Market

Classification
of Markets
Classification on the volume of business
 Wholesale
 Retail
 Classification based on time
 Very short period -(perishable goods, fixed in
supply)

 Short period- (supply can be increased only to

limited extent)

Classification  Long-period - (durable goods, supply can be

increased without any limitations)
of Markets
 Very Long period (Secular Period) - the length of
time-period becomes so long that the far-
reaching changes (i.e., changes in the tastes and
preferences of the buyers, changes in population
and in the factors affecting its growth, new
discoveries and inventions, etc.) take place to
affect both demand and supply appreciably.
 Classification by the 'status of sellers'
 Primary

 Secondary

 Terminal - is a central site, often in a metropolitan area

Classification serves as an assembly and trading place for commodities.
of Markets  Terminal markets for agricultural commodities are usually at
or near major transportation hubs.

Classification by Regulation

 Regulated market

 Unregulated market
 Based on Functions
 General market
 Ex- Begum bazar, Chandni chowk in Delhi
 Specialised market
 Ex- Vegetable, food grains
Classification  Marketing by samples
of Markets  Ex- wool, paints etc.,
 Marketing by grading
 Ex- Agriculture products
 Based on Nature of Commodity
 Product Market

 Stock Market (stock of shares and bonds)

 Bullion Market (metallic trading-Gold, silver)

Classification Based on Legality

of Markets  Legal Market

 Where legal transactions of goods and services take place. Recognized by

the Govt. Also called fair market.

 Illegal Market

 Where high prices are charged what have been fixed by the Govt. Happens
when supply is short. Business earn profits by indulging in Black
Marketing, Smuggling. Hongkong market is an illegal market
 Classification based on Market Structure
Classification  Conditions/Components of Market
of Markets  Sellers

 Buyers

 Nature of Product (Homogeneous or Differentiated)

 Conditions of Entry and Exit

 TYPE OF NATURE OF NUMBER NUMBER ENTRY NATURE OF DECISION
PRICE
MARKET PRODUCT OF BUYERS OF SELLERS CONDITIONS VARIABLES

Perfect Free Entry and

Homogeneous Large Large Uniform Only output
Competition Exit
Both are under control but
Simple Entry barriers
Homogeneous Large One High can take decision regarding
Monopoly exists
only one of them
Discrimination in prices by
Discriminating Entry barriers
Homogeneous Large One High charging different prices to
Monopoly exists
different customers
Higher than
Product Differentiation
Monopolistic P.C but lower More focus on selling
Differentiation Large Many acts as entry
Competition than expenses and advertisement
by each firm barrier
Monopoly
Entry barriers
by
Homogeneous differentiation
Depends on Competitors
Duopoly or Large Two and one of High
Strategies
Differentiated them
dominates the
market
 TYPE OF NATURE OF NUMBER NUMBER ENTRY NATURE OF DECISION
PRICE
MARKET PRODUCT OF BUYERS OF SELLERS CONDITIONS VARIABLES

Homogenous
Few dominate
Oligopoly or Large Few High Competitors Strategy
market
differentiated

Depends on
Bilateral
Homogenous One One Entry Barriers who is Price and output
Monopoly
powerful

Monopsony Homogenous One Large Free Entry Lowest Price Adjusting output to price

Oligopsony Homogenous Few buyers Large No Entry Large buyers No single buyer can afford to
or while some Barriers to push the ignore the rival policies
Differentiated are main price as low
buyers as possible
 Features

❖ Large number of Small Buyers

Perfect
❖Large number of Sellers
Competition
❖Homogeneous Product

❖Firms can freely enter and exit from the market

❖Each firm can take its independent action

❖Buyer and Seller operate under the conditions of certainty

w.r.t Prices, Quantities, Costs and Demand

❖Buyer is the Price Maker and Seller is the Price Taker and
Quantity Adjuster
Price Determination in Very Short Period
 Price Determination in
Short Period Long Period
 Features

Simple ❖ Only one firm sells the commodity having no rivals or direct
competition
Monopoly
❖Indirect competition may exist in the form of
❖Existence of substitutes and

❖The Monopolist product competing with all other goods and services in
general struggle for the consumers rupee

❖No seller can enter the market due to Technical, Economic or

Legal constraints

❖Monopolist is a Price Maker and Buyer is a Price Taker

 ASSUMPTIONS
❖Monopolist does not charge discriminating price
Simple
❖Monopolist is Rational, aims at maximizing profits
Monopoly ❖Individual buyer is a price taker

❖There are no restrictions on the monopolist about the price

❖There is no threat of entry of other firms in the market

Monopoly is not a PERMANENT phenomenon

❖ Close Substitutes emerge

❖Demand Pattern of the consumers undergo a change

❖New firms can enter the industry

❖Government intervenes to control monopoly

 CAUSES OF Existence of MONOPOLY
Simple
❖Patent Rights
Monopoly ❖Government Policies

❖Exclusive Knowledge of technology by the firm

❖Size of market can accommodate single firm

❖By preventing new entry by adopting Limit Pricing policy,

Heavy Advertising, and/or Product Differentiation to make the
entry unattractive

❖Ownership and control of some strategic raw materials.

❖Ex: Indian Railway Catering and Tourism Corporation (IRCTC)

 Features
❖Many firms.
Monopolist
❖Freedom of entry and exit.

Competition ❖Firms produce differentiated products.

❖Firms have price inelastic demand; they are price makers because the good is
highly differentiated

❖Firms make normal profits in the long run but could make supernormal profits in
the short term

❖Firms are allocatively and productively inefficient

❖Liril on freshness, Dettol on antiseptic properties, Dove on smooth skin

❖Starbucks or Costa
 Features
❖Few firms
❖Interdependence
Oligopoly
❖Non-Price Competition
❖ Barriers to Entry of Firms
❖Role of Selling Costs
❖Group Behaviour
❖Nature of the Product
❖Indeterminate Demand Curve
 ❖Android, Windows, iOS, and OS X

❖Ford Motor Company, Toyota Motor Corporation, General Motors

❖Maruti Suzuki, Tata Motors, Hyundai India, and Mahindra & Mahindra.
Oligopoly
❖Steel manufacturers, such as Steel Authority of India Limited (SAIL), one of the
largest steel-producing companies in India.

❖Mobile telecom operators—Jio, Airtel, Vi, and BSNL are the companies that
dominate the market.

❖Aluminium manufactures—Hindalco, NALCO, PG Foils, and Sacheta Metals are

among the largest aluminium-making companies in India.

❖The soft drink industry.

 Features

Duopoly ❖Two firms in the industry

❖Strong control over price

❖Uses Non price competition to compete

❖Very strong Barriers to entry

❖Examples
❖Zomato and Swiggy

❖Uber and Ola