THE MARKET STRUCTURES
Monopolistic Competition
Market structure is a classification system for the key traits of a market, including number of
firms, the similarity of the products they sell, and the ease of entry into and exit from the
market structure.
TYPES OF MARKET STRUCTURE
1. Pure Competition – the market situation characterized by the following:
- the product of firms in the industry under consideration are standardized.
This means that they are identical or at least so much alike that buyers
don’t mind buying from any firm. However, buyers will not buy from a firm
whose price is higher than the rival firms.
- The buyer and the seller are without power to change the going market
price of product. Therefore, the buyers cannot ask for a reduced price from
seller because of the existence of many other alternative buyers.
- The absence or restraints of any kind is an important feature. No artificial
obstacles bar the entry and exit of firms. Obstacles like permits and
licenses required by the government.
- Buyers, sellers, and resource owners have perfect knowledge of market
conditions. Business firms have knowledge of their revenues.
2. Pure or Perfect Monopoly
- Pure monopoly is characterized by only one producer of a product.
Examples of monopolies include firms that supply electricity and water.
- In terms of price determination alone, the price of the commodity is set by
the competing firms and buyers in the perfect competition market. In pure
monopoly, the price is set by the sole seller or the monopolist
- Since there is no competing seller, the buyer has no choice but to buy the
product of the monopolist. Example, candles no matter how inconvenient
they are, is still used as substitutes for electrical lighting.
- A monopolist is a “price maker” and profit maximize since s/he has the
power over market prices.
3.
- Monopolistic competition is that type of market structure “where there
are large number of sellers that produce similar products, but the products
are perceived by buyers as different”
- Under this market structure, the products of many sellers are identical and
even interchangeable like rice and tomatoes.
- The firms are actually in competition. The individual firms, however, make
it appear that their products are different from one another.
- Sellers differentiate identical products through advertising, branding,
packaging, or other non price means.
- Products that are sold under conditions of monopolistic competition
include wristwatches, milk, shoes, clothes, steel, and fast food.
4. Oligopoly
- Oligopoly is that market structure in which there are a limited number of
firms competing for a given industry.
- The products of oligopolists are homogenous or identical. Examples of
these products are gasoline, cement, steel, automobiles, and cigarettes.
- Firms that would want to compete in the oligopolistic market are barred
by high initial investment. This is one of the reasons why there are only
few sellers in the oligopolistic market. Other obstacles in the market entry
includes technical know-how, patent rights and the like
- When an oligopolist sets his price, he must consider the reaction of the
other seller or buyer. He cannot lower price and reap the benefit of higher
sales volume. If he does it, competitors retaliate with lower prices also.
Type Sellers Product Entry of New Firms Example

Pure Competition Many Homogenous Free Sugar

Monopoly One One No Meralco

Oligopoly Few Differentiated Restricted Oil/Fuel

Monopolistic Many Differentiated Free Shampoo

Competition

PREPARED BY:

ELLEN NICY ROA