Applied Economics

Market Structures
Lesson DIFFERENT MARKET STRUCTURES
5
Last module, we discussed the implications of market pricing in making economic
decisions. The prices can have impacts in the demand and supply of products that we
buy. When there is an excess demand for the quantity supplied, there is shortage in the
supply of products. When there is an excess in supply, there is surplus. When the supply
and demand curves intersect, there is equilibrium. The market price or equilibrium is
the state in which the market supply and demand balanced each other and as a result
the prices become stable (Source: investopedia).

When the entrepreneurs offer products in the market, they set prices. We tend to
respond on their prices by the quantity of products we buy from them. The concept of
elasticity applies. The price elasticity shows our responsiveness or the way we react
when the price of products changes. It measures the quantity demanded or supplied of a
certain good to a change in its price. Elasticity can be described as: a) elastic (or very
responsive with the changes in the prices of products, that is when it is easy to find for a
substitute product when the price of the product increases and b) unit elastic, or
inelastic or not very responsive with the changes in the prices of products. (Sources:
Investopedia) & ER services 2020).

Business entities comprise also an economy. In the economy, firms differ from one
another on how to allocate their resources to produce the products and how to deliver
them to the consumers. They have to plan how to meet the demands of the consumers
and participate in the market.

From the statements of the founder of Apple, would you agree that the secret for being
successful in the industry is to build the best thing (innovate the product) and not more
on the market structuring? As a customer and entrepreneur, do you agree that market
structures are important considerations to be competitive in the market? You can at
least answer these questions when you appreciate more the concepts of the market and
its structures.

When a firm enters the market world, it has to decide for the ideal market structure in
order stay longer in the industry. Take note that, to assess the business environments, is
a big help to remain competitive in the market. Let’s get to know about the different
market structures. In the article of AU Online (2017), A Guide to Types of Market
Structures, it defined market structure as a starting point for assessing economic
environments of firms. It also mentioned market structure as a tool of understanding of
how companies and markets work allows business professionals and leaders to
accurately judge industry and market news, policy changes and legislation and how the
economy shapes important decisions. https://online.aurora.edu/types-of-market-
structures
 Market Structures and Characteristics

Let us proceed analyzing the market

structures. Each market structure has
characteristics which determine the relations
between the sellers to another, of sellers to
buyers, company to investors, economists to
government and more which affect the
behavior and interaction of buyers and
sellers. Remember that market is a set of
buyers and sellers who determine the price of
goods and services.

Some of the market structure’s characteristics include: type of the products produced,
number and size of sellers and buyers, price of products sold in the market, the ease or
difficulty of entering and exiting the industry and the number of companies in the
market (source: AU Online 2017)

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
- Consumers can dictate the price Examples:
agricultural markets such as wheat, cereals foreign
exchange markets, etc.

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 prices
- Examples are public transportations like MRT,
computer software manufacturer like Microsoft.
Monopolistic Competition
- Multiple giant firms produce similar and highly
predictable products
- Profit maximization occurs where MC=MR
- 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: cosmetics, garments, medicines, shoes,
car washes, automotive services, etc.

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: aluminum and steel, oil and gas,
automobile, airlines, entertainment, hotel and
restaurants, coffee shops, etc.