MARKET STRUCTUTRE

In economics market structure is also known as market form. The word market structure describes the state of a market with respect to competition. Markets can be distinguished by the number of firms in the market and the type of product that they sell. Market structure is determined by a number of factors. The presence or absence of these factors will determine the nature of the market. Thus a market with differentiated products with some entry barriers and large number of sellers would be known as monopolistically competitive market and one with same features but with few sellers would be known as an Oligopoly market. Ideal markets are full with economic freedoms and they are the most competitive markets. Such markets are known as perfectly competitive markets. The competitiveness of the market depends upon the power of individual firms to influence market prices. The less power an individual firm has to influence the market in which it sells its products, the more competitive that market is. The extreme form of competitive market structure comes into existence when each firm in a market has zero market power. Market

structures are therefore either perfect or imperfect. Between perfect and imperfect competition, the two ends of marker structure, are number of markets will be found. The nature of these markets will be determined by a combination of factors. These factors or the determinants of market structure are as follows: • Freedom of entry and exit. • Nature of the product, i.e. whether the product is homogenous or differentiated? • Control over supply and output or the absence of it • Control over price or the absence of control. • Barriers to entry and exit.

Monopolistic competition is also a a competitive market where there are a large number of independent firms which have a very small proportion of the market share.TYPES OF MARKET STRUCTURE Based on the factors determining market structures. Duopoly is a market consisting of only two sellers. The imperfectly competitive structure is quite identical to the realistic market conditions where . Oligopoly in which a market is dominated by a small number of firms which own more than 40% of the market share. the following types of market structures are found: 1) 2) 3) 4) 5) A perfectly competitive market consists of a very large number of firms producing a homogenous products. Monopoly is a market where there is only one producer or seller of a product or service.

monopolists. MONOPOLY Monopoly is at the other extreme end of the market structure. i. It is the negation of competition. a monopoly exists when a specific individual or an enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it.some monopolistic competitors.e. and duopolists exist and dominate the market conditions. (This is in contrast to a monopsony which relates to a single entity's control over a market to purchase a good or service. The elements of Market Structure include the number and size distribution of firms. A monopoly firm may indulge in price discrimination. It is therefore the opposite of a competitive firm. The monopolist is a price maker as against the price taking competitive firm. entry conditions. Monopolies are thus . and the extent of differentiation. and contrasted with oligopoly where a few entities exert considerable influence over an industry). The monopoly firm is also the industry and hence produces the entire industry’s output. oligopolists. In economics. charging different prices to different consumers in different markets.

Monopolies. A monopoly is said to be coercive when the monopoly firm actively prohibits competitors . a monopoly may also have monopsony control of a sector of a market. Monopolies can form naturally or through vertical or horizontal mergers.characterised by a lack of economic competition to produce the good or service and a lack of viable substitute goods. This is to be contrasted with the model of perfect competition where firms are price takers and do not have market power. A monopoly must be distinguished from monopsony. The verb "monopolise" refers to the process by which a firm gains persistently greater market share than what is expected under perfect competition. monopsonies and oligopolies are all situations where one or a few of the entities have market power and therefore must interact with their customers (monopoly). resulting in abnormal and sustained profit. a monopoly should be distinguished from a cartel (a form of oligopoly). prices or sale of goods. in which there is only one buyer of a product or service . Monopolists typically produce fewer goods and sell them at a higher price than under perfect competition.meaning that expectations about their behavior affects other players' choice of strategy and vice versa. in which several providers act together to coordinate services. Likewise. suppliers (monopsony) and the other firms (oligopoly) in a game theoretic manner .

and trademarks are all examples of government granted and enforced monopolies. Patents. copyright.  Price Discrimination: A monopolist can change the price and quality of the product. The characteristics of monopoly are as follows:  There are high barriers to entry.from entering the field or punishes competitors who do. is sanctioned by the state. Holding a dominant position or a monopoly in the market is not illegal in itself. Therefore. The government may also reserve the venture for itself. by contrast. and for practical purposes.  Single seller: In a monopoly there is one seller of the good who produces all the output. when a business is dominant.  The firm controls either the price of the output. often to provide an incentive to invest in a risky venture or enrich a domestic interest group. thus forming a government monopoly.  Prices are in excess of marginal cost. however certain categories of behaviour can. the whole market is being served by a single firm. competition laws place specific restrictions on monopolies. A government-granted monopoly or legal monopoly. He sells more quantities charging less price against the . the firm is the same as the industry. be considered abusive and therefore be met with legal sanctions.  The firm makes abnormal profits in both the time periods. In many jurisdictions.

 It encourages Research & Development.  It encourages innovation. Market power: Market power is the ability to affect the terms and conditions of exchange so that the price of the product is set by the firm (price is not imposed by the market as in perfect competition). any price increase will result in the loss of some customers. A monopoly faces a negatively sloped demand curve not a perfectly inelastic curve.  There is enough capital for research.  Efficiently use of resource. . Although a monopoly's market power is high it is still limited by the demand side of the market. Advantages  Monopoly is an ideal market structure if it is a natural monopoly.  No risk of over production. Consequently.  Reduction in price of goods. product in a highly elastic market and sells less quantities charging high price in a less elastic market.  Economies of scale can be gained and consumers may benefit.

the potential for supply is limited.  Consumer choice is limited in monopoly markets. Control over entire market.  Increase in price of product. The plaintiffs alleged that Microsoft abused monopoly power on Intel-based personal computers in its handling of operating system sales and web browser sales.S. when price is greater than marginal cost. UNITED STATES VS. Joel I. Klein was the lead prosecutor.e. a monopolist may become inefficient  Exploitation of labour. DISADVANTAGES  The monopolist’s preference to high price than to high output leads to exploitation of consumers.  Due to complacency.  Since the output is restricted. 1998 by the United States Department of Justice (DOJ) and 20 U. i. MICROSOFT United States vs. The issue central to the case was whether Microsoft was allowed to bundle its flagship . states. Microsoft was a set of consolidated civil actions filed against Microsoft Corporation pursuant to the Sherman Antitrust Act on May 18.

Bundling them together is alleged to have been responsible for Microsoft's victory in the browser wars as every Windows user had a copy of Internet Explorer. It was further alleged that this restricted the market for competing web browsers (such as Netscape Navigator or Opera) that were slow to download over a modem or had to be purchased at a store. Microsoft's conduct in forming restrictive licensing agreements with original equipment manufacturer (OEMs). The case was tried before Judge Thomas Penfield Jackson in the United .Internet Explorer (IE) web browser software with its Microsoft Windows operating system. that the two were now the same product and were inextricably linked together and that consumers were now getting all the benefits of IE for free. They also asserted that IE was not really free because its development and marketing costs may have kept the price of Windows higher than it might otherwise have been. since a separate version of Internet Explorer was available for Mac OS. Underlying these disputes were questions over whether Microsoft altered or manipulated its application programming interfaces (APIs) to favor Internet Explorer over third party web browsers. Microsoft stated that the merging of Microsoft Windows and Internet Explorer was the result of innovation and competition. and Microsoft's intent in its course of conduct. Those who opposed Microsoft's position countered that the browser was still a distinct and separate product which did not need to be tied to the operating system.

HISTORY The U.States District Court for the District of Columbia. The DOJ was initially represented by David Boies. government's interest in Microsoft's affairs had begun in 1991 with an inquiry by the Federal Trade Commission over whether Microsoft was abusing its monopoly on the PC .S.

In its 2008 Annual Report. 1994 in which Microsoft consented not to tie other Microsoft products to the sale of Windows but remained free to integrate additional features into the operating system. In the years that followed. but the Department of Justice opened its own investigation on August 21 of that year. Department of Justice.operating system market. although the DOJ did not agree with this definition. The commissioners deadlocked with a 2-2 vote in 1993 and closed the investigation. resulting in a settlement on July 15. These constraints include limits on certain contracting practices. and the District of Columbia in two separate actions were resolved through a Consent Decree that took effect in 2001 and a Final Judgment entered in 2002. These proceedings imposed various constraints on our Windows operating system businesses.” . Microsoft stated: “Lawsuits brought by the U. if we fail to comply with them. We believe we are in full compliance with these rules.S. However. Microsoft insisted that Internet Explorer (which first appeared in the Plus! Pack sold separately from Windows 95) was not a product but a feature which it was allowed to add to Windows. additional restrictions could be imposed on us that would adversely affect our business. 18 states. mandated disclosure of certain software program interfaces and protocols. and rights for computer manufacturers to limit the visibility of certain Windows features in new PCs.

What makes Microsoft a monopoly? It's that their entire product line rests upon state enforcement of legal monopolies of duplication called "copyrights" (that's what a copyright is: a monopoly on the duplication of an .

intangible such as software). Imagine a world where there is only one purveyor of tangible products -. What happens here is that armed dudes show up at your doorstep and yank you into a cell. and when time comes for harvest. and your assets are taken away from you. but selling a substitute for their products. And the most outrageous thing is that they outsource their costs of enforcement to you. or not. and you plant it. but an investment in time and money nonetheless). Now imagine you wanted to sell Windows instead of potatoes: you buy a copy of Windows. an act after which you are no longer competing in their products. You buy one potato. the taxpayer. Exactly like in the potato example above. whether they were involved in the commission of this act. So. You invest time and energy of your own into multiplying said potato and making a huge-ass farm. Imagine you want to enter the potato business. Essentially as absurd as a dairy product company claiming a monopoly on butter. it is a crime to compete with Microsoft in the same products. you can pick them up and sell them in direct competition with the guy who sold you the first potato. so everybody else must sell margarine or else. Now you are poor and possibly the shameful owner of a two-inch-wide gaping anus. and start selling it. Let's go with an example here.it'd be an epic disaster of the most abject variety of mercantilism. as you can probably see now. right? This is exactly what happens . duplicate it N times (certainly a cheaper investment. You must invent your own non-potato if you want to compete with them.

They have an assortment of little monopolies enforced by the state and thus the moniker "monopolist" is objectively welldeserved. Why is Microsoft a Monopoly? . The fact that nobody else is allowed to compete with them on the Windows and Office businesses. the state snatches you and puts you in a cage.but you don't see how the alternatives could look like because you have always lived under this copyright enforcement regime. that is what makes them a monopoly. It is really that simple: if you compete with them. but you don't feel it's absurd because you are used to it. What you have now is the epitome of absurdity.has successfully carved a small segment of the world.with software -. independently of their market share. only perhaps a bit mitigated because the free software movement -the only area in which competition in the same product is explicitly permitted -. What you have is mercantilism for software now.a disaster -.

to suffer from destructive politics and conspiracies. when a company goes from nothing. That means that there has to be so meone to create standards. when a company becomes big and monopolistic. I’ll start with technology. for a monopoly to develop. and to lose creative focus. So. . the need to raise huge amounts of capital. there has to be a reason that goes beyond the market. or fundamental technological necessity. as an opportunity. Then. Usually. the more likely it is to suffer from friction (when people and processes run into each other and jam). then Windows). for example. there have to be other issues involved. and fill every market niche. and by defining the kind of machine that could run their OSs. to monopoly. Second.This is an important question because monopolies are not natural. the market throws up competitors who see the overpriced products of Big Inc. Microsoft did this by creating a series of operating systems (DOS. political connections. I think there are two reasons. whenever you have a communication or data system there have to be standards. in only twenty years. and someone to enforce the standards. it also becomes inefficient. new technology. Microsoft was successful at this because. unlike Apple and Commodore it set about creating nonexclusive standards that allowed anyone to get into the computer hardware business. So. The larger a firm. In the case of Microsoft. Understand. bigness and inefficiency go together. First. Microsoft became a monopoly because they were able to create and enforce universal data interaction standards for personal computers.

there is nothing new about this. Microsoft products were able to be in every market niche. And. the first players gain huge advantages because they are the first to gain the experience. they have to catch up (with a firm that is probably a moving target) before they can compete. Understand. and . several technologies (steam power. And.So. The Microsoft monopoly was possible. because of the incredible advantages of being first. Between 1850 and 1890. the monopoly made Bill Gates the wealthiest man in the United States. The problem is that in an unregulated market. Within a few years Microsoft had over 90% percent of the OS market.0 (the first Macs didn’t appear until 1984). in part. metallurgy. back in 1981 (after creating Applesoft Basic for Apple Computer) they entered the OS market with MS DOS 1. the Microsoft no longer has an economic reason to produce a quality product because of it’s monopoly. the most universally useful standard is the one most valuable to computer users. Microsoft is a good example of this. when competitors come into the market. The strategy that made Microsoft a monopoly worked because a communication/data system is valuable only in terms of the number potential users and the number of possible interactions. let me give you a little history. Microsoft became a monopoly because they created the most universally useful standard for desktop computers. So. NEW TECHNOLOGY : Whenever a new technology opens up and goes into a dynamic growth mode. the invested capital. and the people.

and many became incredibly wealthy as their firms became monopolies. steel tycoons. the first people in on the technology had enormous opportunities. for example. today we have Microsoft. and were probably very arrogant to begin with (it’s arrogant belief that I’m right. And you could make everyone would have to pay your rates. As a result. and the Standard Oil Monopoly (imagine what it would be like to have just one brand of gasoline. the freeways. Of course. and the world is wrong that makes someone abandon a perfectly good job to work in a garage on some blue sky project. Understand. railroad barons. Naturally. in the late 1970’s. There were. Congress responded with various “Antitrust” statutes.electricity) went dynamic almost simultaneously. motor oil. a “personal computer”). What if you owned all the railroads going into say. say. Massachusetts. and shipping magnates. there were excesses. Boston. More recently. It was being involved with the new technologies at the beginning that gave these men (and a few women) the chance to become awesomely wealthy. Eventually. The first targets of the Justice Department under the new laws were the railroad trusts. and the monopoly creation cycle started again. back in 1880? Today that would be like owning the airports. and heating oil?). and Bill . digital microelectronics technology went dynamic. and the railroads going into that town. Microsoft is a traditional technology generated monopoly. These men gained an inordinate amount of power.

For example. we use a language standard to ensure understanding. the federal courts are once again being asked to bust a trust. or write. the greater the value to individual users.Gates is a traditional tycoon (and he is behaving like a traditional tycoon). Another case is the telephone system in the United States. THE ECONOMICS OF COMMUNICATION SYSTEMS Before I go on with Microsoft. it makes our businesses more profitable. (I know! I know! Economic rules are supposed to be made in Washington by Newt Gingrich. Here again. and spell. there is a telecommunications sector of the economy because of these rules. So. The language standard we use (in this case English) is enforced by the public schools. there is something I should explain. The basic economic rule is this: A communication system is only valuable in terms of the number of people who can participate. it makes our public life go more smoothly. write. when we speak. Communications systems have their own unique economic rules. After the Bell patents expired. In the early years of this century the telephone system grew enormously. and we shouldn’t say anything “unholynomic”). So. dominated by the AT&T monopoly. where most of us learned to read. and the greater the profits to the promoters of the system. and it improves the quality of our lives. many new companies entered the telephone business. The more participants in the system. the value of the . The fact that we (mostly) use the same language standard has enormous benefits. but AT&T was able to maintain its monopoly in spite of the pressure.

to maximize the value of the telephone system to AT&T’s stock holders. To maximize the value of the telephone system. The higher the quality of service. AT&T had to maintain consistently high standards of service (rare for a monopoly) to maintain it’s profits in a regulated environment. And this made the Bell System monopoly work even better because it cut off the traditional roads to monopoly profits (overcharging. etc. or a thousand) little standards would have destroyed the value of the phone system for it’s users and it’s promoters (and AT&T’s stock holders). to common phone rates. Of course. So. . the more the system was used. Having twenty (or a hundred. So.). So. every telephone had to be able to connect to every other telephone in the world. and so on. The more the phone system was used. Standards for everything from the voltages and amperages used by each phone. gauging. So. and the greater the profits. Understand. the value to individual users had to be maximized. someone had to create common standards for all phones. there had to be common standards. the phone system could not be very valuable to anyone. the greater the profits to the stockholders.telephone system to individual users (and profitability to its promoters) depended on the total number of users. the government came in and regulated the AT&T monopoly. AT&T remained a monopoly because of it’s ability to create and enforce standards. to the dialing systems. the monopoly worked because the value of AT&T to it’s stockholders was directly related to the of value of telephone service to each individual user. and someone had to enforce these standards. Without these standards.

With a large majority of developers writing code for Windows. Windows is perceived as a platform that will be with us for a long time to come. and API's. the sheer size of the Windows installed base is seen as a hedge against market change. The monopoly was elegantly self-perpetuating.The courts have ruled that Microsoft holds a monopoly position in Intel PC Operating Systems. And web-surfing users are now using Internet Explorer in a ratio of about 8:1 over alternative browsers. represent millions of person-years of Microsoft assets. the investment in skill. who have logged many long sessions of coding for the Windows environments. Many companies. been unable to switch to a different platform. and with their deep immersion in its assumptions. The scale of that market dwarfs its competitors and opens to developers many more specialty markets than any alternative platform. through economic necessity. Because it can take years of effort to reach the highest levels of productivity in a complex development environment. the continued dominance of Windows applications was also assured. For years it has been a difficult decision for a professional developer to choose an environment other than Windows. Those programmers. and tools of Windows software developers themselves. experience. Business users have long been aware of Microsoft's lock on office productivity applications that require them to use MS Office in order to remain compatible with their business partners and customers. failing to appreciate the depth of . Windows-specialized programmers have. tools. training. Further. But one aspect of Microsoft's monopoly is more fundamental than any of those.

or investors in order to succeed. it seemed nearly impossible for such a locked market to break free of this cycle. While Microsoft once made the fending off of mighty IBM look easy. corporate partnerships. After several spectacular failures. the Linux community seems to draw motivation from its dissatisfaction with the computing landscape that Microsoft has created. Linux depends only on hobbyists' passion for programming and their self-imposed standards of quality in their own work.Microsoft's monopoly and its determination to defend it. It needs no profits. Further. Acknowledgement . squandered valuable resources probing Microsoft's markets for an opportunity. the Linux phenomenon presents a very different kind of challenge.

I also extend my heartfelt thanks to my family and well-wishers.I owe a great thanks to many people who helped and supported me during this project. I would also thank my institution without whom this project would have been a distant reality. My deepest thanks to lecturer. Bhavna Mam the guide of the project for guiding and correcting various documents of mine with attention and care. Managerial . She has taken pain to go through the project and and make necessary connection as when needed.

shah f.s s-124 .m.y.Economics MARKET STRUCTURE Pratik m.b.

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