SHS

APPLIED ECONOMICS
Quarter 1 -Module V
DIFFERENTIATING VARIOUS MARKET STRUCTURES
Applied Economics – SHS
Quarter I – Module 5: Differentiating Various Market Structures

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 DIFFERENTIATE VARIOUS MARKET STRUCTURES

This lesson discusses how sellers can operate under a uniform market pricing. There
are various market structures in terms of number of buyers and sellers in the market, nature
of product bought and sold, entry/exit of firms and input owners, pricing power, and others.
Market structure refers to the nature of sellers and buyers in a degree of competitive
environment of goods and services wherein they operate.
Moving forward, let us think of this important question: How can the various market
structures affect the buyers and sellers in a competitive environment especially in today’s
digital world?

Perfect
Competition

Oligopoly Duopsony

Types of
Monospony Duopoly
Market

Monopolistic
Oligopsony
Competition

Monopoly

Ordinarily, the word “market” refers to a place where buyers and sellers usually meet.
In economics, however, the term market has a wide perspective. It does not only refer to a
place, but also to the entire area where buyers and sellers of a product are spread out. In
today’s digital age, the sale and purchase of goods are marketed in terms of online selling
where transactions of commodities are made through the internet, telephones/cellphones, etc.
The market is a situation of different competition among sellers in offering their goods to
buyers. Competition is the basic feature that defines or characterizes the market structure or
kind of market that exists in a particular business undertaking or industry.

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 The learner is expected to differentiate various market structures in terms of:
a. Number of sellers and buyers
b. Types of products
c. Entry/exit to market
d. Pricing power
e. Other

• Market Structure - refers to the nature of sellers and buyers in a degree of

competitive environment of goods and services where they operate.
• Competition – is the basic feature that defines or characterizes the market structure
or kind of market that exists in a particular business undertaking or industry.
• Monopsony – refers to a single buyer in the market wherein there is one major
employer in local labour and many workers seeking to gain employment.
• Duopsony – refers to two large buyers who act jointly in the market. It is also known
as “buyer’s duopoly”.
• Oligopsony - is a market in which there are only few large buyers for a product or
service where the buyers have great control over the suppliers if they drive down
prices.
• Perfect Competition – refers a market structures with a large number of sellers in
the market. The markets are unregulated, and the firms can freely enter and exit in
the market in response to potential profit.
• Monopoly – refers to a market structure with single seller in the market.
• Duopoly – a type of oligopoly market with two sellers in the market.
• Oligopoly – refers to a market structure with few sellers in the market.
• Monopolistic Competition – refers to market structure with many sellers of
differentiated products.

Let’s try to check your

understanding about our lesson.

Direction: On your notebook, write FACT if the given statement is correct, and BLUFF
if it is wrong.

1. The market structures are influenced by the number and nature of sellers in the
market.
2. In a perfect competition, the product has no close substitutes.

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 3. Under oligopoly, there is one producer or seller of a particular product and there
is no difference between a firm and an industry.
4. In monopoly, the market situation is one in which there are a few firms selling
homogeneous or differentiated products.
5. Monopolistic competition refers to a market situation wherein there are many
firms selling a differentiated product.

Do a self-check evaluation as we go on with

this module! Have fun while learning!

CHARACTERISTICS OF MARKET STRUCTURE

There are varying number of determinants of market structure for particular goods.
These are the following:

(1) The number and nature of sellers and buyers.

Number and Nature of Sellers: The number and nature of sellers in the
market influenced the market structures. It ranges from a single seller in pure
monopoly, two sellers in duopoly [type of oligopoly], few sellers in oligopoly, many
sellers of differentiated products in monopolistic competition, and to a large number of
sellers in a perfect competition. Think of a company or a firm in Bicol Region and
describe the number and nature of sellers and buyers.

Number and Nature of Buyers: Market structure is influenced not only by the
number and nature of sellers, but also by the number and nature of buyers in the
market.

• A single buyer in the market or buyer’s Monopoly is called Monopsony

market. This market occurs when there is one major employer in local labor
and many workers seeking to gain employment.

• In Duopsony, there are two large buyers who act jointly in the market or
also known as “buyer’s duopoly”. Duopoly is a special case of the theory of
oligopoly.

• Oligopsony is a market in which there are only few large buyers for a
product or service wherein the buyers have great control over the suppliers
if they drive down prices.

• Perfect competition occurs when there are many buyers of a homogeneous

products while in monopolistic market there are large number of buyers of
differentiated products

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 Monopsony Oligopsony
Lord of the Manor

(2) The nature/types of the product bought and sold. The nature/type of a
product will determine its market structure. If the products offered and sold are
differentiated, the market is characterized as a monopolistic competition. On the other
hand, if products offered and sold are homogeneous, the market is characterized as
perfect competition. If the firms produce homogeneous or differentiated products, there
exists now an oligopoly. When a product is completely different from other products and
has no close substitutes, the market is characterized a pure monopoly.

(3) The entry and exit of firms from the market. Barriers to entry and exit are
important characteristics in analyzing the market. One factor to be considered is the
government. It plays a vital role in the entry and exit of firms by setting up rules to regulate
the market. Barriers to entry are the hindrances that challenge new small firms to dominate
the market. The profits and losses in a particular market attract the entry of new firms and
lead to the exit of weak firms from the market.

➢ In a perfect competition market, there is freedom of entry or exit of firms.

The markets are unregulated and the firms can freely enter and exit the
market in response to potential profit.

➢ On the contrary, in a monopoly, the entry or exit of new firms is blocked.

Water and power supply services can be considered under monopoly
competition.

➢ In oligopoly, barriers to entry of firms is difficult that prevent entry of new

firms into the industry. Some of the reasons that prevent new firms from
entering into the market are financial considerations such as requirement
of large capital, patents, control over raw materials, etc.

➢ On the other hand, in monopolistic competition, there are no restrictions

in the entry and exit of firms due to product differentiation. Firms sell similar
but highly differentiated products. Barriers to entry and exit is easy in
monopolistic competition.

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 A free market is characterized by free competition. Thus, there are no barriers
to entry. Anyone is free to engage in any business undertaking of his/her choice, so it is
normal to have many competitors. When competition is stiff, consumers are offered a wide
range of choice (which to buy) and the best prices (how much is a consumer willing to buy
a particular or service). Stiff competition most certainly assures best quality.
Entrepreneurs cannot afford to lose much-valued customers or consumers due to lousy
service or poor quality of the product.
A monopoly is characterized by just one supplier. Barriers are, therefore, at a
maximum. It is difficult to penetrate a market wherein there is only one supplier, especially
if that supplier has made a name which is identifiable to a specific product or service. In
a monopoly, the supplier can dictate his/her price, which could be artificially high, and the
consumers have no choice and more likely have to contend with the inferior quality of
product or service.

(4) Pricing power describes the effect of a firm's price based on the quantity
demanded of a particular product and can relate to price elasticity demand. For instance,
if the price of a product in the market goes up, the demand for that product will go down
as consumers will look for cheaper alternatives or other substitutes.
• In a perfect competition, the product has no influence on the market price and
the firms must accept the prevailing prices in the market.
• In a monopoly, the firm set its own price due to the high demand on the product
or services offered.
• In oligopoly, firms also set their own prices and avoid price war with other firms
such as those in the gasoline industry and car industry.
• In monopolistic competition, firm can raise prices to increase profits but the
they must produce quality differentiated products to set them apart from their competitors.

(5) Economies of Scale

When business entities scale up their production to cater to an expanding market in

the same locality or to other places, the smaller firms have no choice but to compete with one
another. This situation causes the emergence or rise of oligopoly. Eventually, the smaller
firms unable to meet stiff competition close shop, one by one, until only one firm, that attains
such extensive production and able to meet demand in the industry, remains. When this
situation occurs, it now becomes a monopoly.

Below are pictures representing the characteristics of market structures. On your

paper, state what the picture is referring to and describe how it works in the market?

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 Customer

Customer

Customer

Customer

Customer

SINGLE SELLER

On your paper, provide the different characteristics of market structure in a matrix form.

On your paper, provide real examples for each four types of market structures in the
Philippines.

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Direction: Select the best answer for each of the following. Write the letter
corresponding to your answer.

1. A public market is an example of .

a. perfect competition c. oligopoly
b. monopolistic competition d. monopoly
2. The market structure that involves the most competition is
a. perfect competition c. oligopoly
b. monopolistic competition d. monopoly
3. Which of the following market structures has the largest number of firms trying to sell their
products?
a. perfect competition c. oligopoly
b. monopolistic competition d. monopoly
4. Each of the following is a condition necessary for the existence of perfect competition
except
a. the good or service must have many sellers available
b. the good or service being offered by one competing firm must be identical to those
offered by other firms
c. there must be no control over price by any one firm
d. there are barriers to entry in this type of market
5. Firms utilize no price competition and product differentiation in the market structure of
a. perfect competition c. oligopoly
b. monopolistic competition d. monopoly

6. In a monopolistic competition market, firms usually sell products that are

a. close substitutes c. complementary
b. completely different d. identical
7. is a market that has many sellers.
a. Oligopoly c. Open market
b. Monopoly d. Monopolistic competition
8. One feature of an oligopoly is that there are few .
a. buyers c. sellers
b. patents d. markets
9. When the largest 3 or 4 firms in an industry produce 70% or more of the industry's total
output, the industry is classified as
a. a competitive monopoly c. monopolistic competition
b. a pure monopoly d. an oligopoly
10. ___ is an industry that is often a natural monopoly.
a. electricity c. steel
b. grocery stores d. pure competition

In your area or municipality where you are currently residing identify four types of
market structures and the main products offered in the market.

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Key to Corrections:

Try This
1. Bluff-and-buyers
2. Bluff-monopoly
3. Bluff-oligopoly
4. Bluff-monopolistic
5. Fact

Check Your Understanding

1. a
2. a
3. a
4. d
5. b
6. a
7. d
8. c
9. d
10.a

REFERENCES

Dinio, R.P. & Villasis, G.A. 2017. Applied Economics. Quezon City: Rex Book Store

Manapat, C.L. 2018. Applied Economics for Senior High School. Quezon City:
C&E Publishing Incorporated

Pagoso, C. M., Dinio, R.P., & Villasis, G.A. 2008. Principles of Economics. Quezon
City: Rex Book Store

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