Market Structures

The starting point for assessing the economic environments of firms.

Market Structures
- When a firm enters the market world, it has to decide on the ideal market structure in
order to stay longer in the industry.
- Market structure as a tool of understanding how companies and markets work allows
business professionals and leaders to accurately judge industry.

Pure (Perfect) Competition

- Many and small sellers and no one can affect the market
- Homogeneous product is offered by the companies
- Free entry to and exit from the industry
- All firms only have the motive of profit maximization
- No concept of consumer preference
EXAMPLES:
a. agricultural markets such as wheat, cereals foreign exchange markets, etc.
b. stalls in the public market that sell staple goods like bread, fruits, and vegetables.
c. cell phone and gadget stalls in Greenhills, which offer the same products

Monopoly
- A single seller and no competitors in the market
- Very unique and highly predictable product or no close substitutes
- The firm is the price maker and the firm has considerable control over the price
- It can control the quantity supplied
- Entry/exit is difficult and blocked
- Sole seller has the full power to set price
EXAMPLES:
a. public transportations like MRT
b. computer software manufacturer like Microsoft
c. Electricity (meralco)
d. an innovation that is protected by a patent.

Monopolistic Competition
- Multiple giant firms produce similar and highly predictable
- maximization occurs
- Firms compete for economic profits
- A competitive market that has only a handful of buyers and sellers
- Sellers offer close substitutes products to consumers
- Comparatively easier entry and exit
EXAMPLES:
a. cosmetics, garments, medicines, shoes, car washes, automotive services, etc.
b. salons and spas
c. restaurants
Oligopoly
- Few large firms in the industry
- Standardized or differentiated products/ goods
- Various barriers to enter the market, entry is difficult and huge capital investment may be
the barrier to enter
- The firms set and control their prices
EXAMPLES:
a. Aluminum and steel, oil, gas, automobile, airlines, entertainment, hotel
b. telecommunications industry

Industry Analysis and Competition

Main sectors of the economy and useful tools in conducting industry analysis.

Sectors of the Economy and Related Industries

- The primary sector includes industries extracting raw materials from natural resources.
(9%GDP Contributions by Sector Origin)
- Secondary sector process raw materials into goods through manufacturing and
construction. (34% GDP Contributions by Sector Origin)
- Tertiary sector covers the marketing and selling of raw and manufactured products.
(57% GDP Contributions by Sector Origin)

Agriculture and Fishing

A. The agriculture, hunting, and forestry sectors cover the farming of rice, vegetables, and
other crops; cultivation of land resources; livestock poultry; and other agriculture-related
activities. (7%)
B. Fishing includes the extraction of marine products from bodies of water. (2%)

Industry Sector
Includes four main industries: (34%)
1. mining and quarrying
2. Manufacturing
3. Construction
4. electricity, gas, and water supply.
Heavy manufacturing light manufacturing

Service Sector
The Philippines has five main service industries: (57%)
1. transport, storage, and communication;
2. trade and repair of motor vehicles, motorcycles, and personal and household goods;
3. financial intermediation;
4. real estate, renting, and business activities; and
5. public administration, defence, and compulsory social security
Public Sector versus Private Sector

PRIVATE SECTOR is composed of institutions that are privately owned.

PUBLIC SECTOR is composed of government-owned enterprises.

Rivalry - means that a good consumed by an individual cannot be consumed by another

individual or household.
Excludability - or exclusiveness means that paying for a good or service prevents access by
others who have not paid for the good.
Nonexcludability - means that consumption or use of a public good does not prevent other
individuals from consuming or using the same good.
Nonrivalry - means that consumption or use does not reduce the quantity of the good available
for others.

Private goods by private sector entities are goods characterized by rivalry and excludability.
Includes food, clothes, and personal items.
Public goods are characterized by nonrivalry and non-excludability. Includes national defence,
public roads, and highways. Public parks, street lighting, drainage systems.

Club goods are characterized by excludability and nonrivalry. Includes movie houses, parks,
concerts, etc
Common goods are characterized by rivalry and nonexcludability. Includes coal, fish in the
ocean, and clean air.