Lecture
Concept of Market Structure
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What is Market?
❑ In common language market means a place
where goods are purchased.
❑ In Economics, Market means a social system
through which the sellers and buyers of a
commodity or a service can interact with each
other.
❑ Benham describes market as, any area over
which buyers and sellers are in such close
contact with each other, either directly or
through dealers that the prices obtainable in one
part of the market affect the prices paid in
other parts.
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Essential Features of a Market
a) existence of a commodity which is dealt with
b) existence of buyers and sellers
c) existence of a place be it a certain region, a country, or the entire world
d) there is such interaction between buyers and sellers that only one price should prevail for
the same commodity at the same time.
e) Intensity of competition
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Classification of Markets
Markets can be classified on the basis of area/coverage/location, time and degree of
competition.
On the basis of area/location/coverage-
Local market
National market or World market
On the basis of time-
Very short period market and short period market
Long period market and very long period market
On the basis of nature/degree of competition, there are broadly two categories of markets-
Perfectly competitive market
Imperfectly competitive market
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Perfectly Competitive Market
A market is said to be perfect competitive if there are infinite/numerous number of buyers
and sellers taking part in transaction of a homogeneous product which has a definite
price at a particular period of time.
Characteristics of Perfectly Competitive Market-
There are large numbers of buyers and sellers
Sellers can easily enter into or exit from the market.
Sellers offer a homogeneous product.
Perfect Knowledge about market conditions
Absence of selling cost
Price taker
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In a perfectly competitive market, the number of
buyers and sellers is so large that no individual
decision maker can significantly affect the price
of the product by changing the quantity it buys
or sells.
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Imperfectly Competitive Market
A market is said to be imperfect if there are finite number of buyers and sellers taking part
in the transaction of a non-homogeneous product; where, both buyers and sellers are not
aware of the offers being made by others. Different prices prevail for the same commodity at
the same time in such a market.
Characteristics of Imperfectly Competitive Market-
Finite number of buyers and sellers
Restricted entry and exit of buyers and sellers
Imperfect information
Differentiated products
Existence of selling cost
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Types of Imperfectly Competitive
Market
On the basis of number of sellers On the basis of number of buyers
Monopoly (only one seller) Monopsony (only on buyer)
Duopoly (only two sellers) Duopsony (only two buyers)
Oligopoly (a few sellers) Oligopsony (a few buyers)
Monopolistic competition Monopsonistic competition
(a number of sellers but not numerous) (a number of buyers but not numerous)
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Monopoly Market
The word Monopoly is derived from two Greek words Mono and Poly. Mono means
single and poly means seller. Thus Monopoly means single seller.
Monopoly refers to the market situation where there is one seller and there is no close
substitute to the commodities sold by the seller. The seller has full control over the price
and supply of the commodity.
Example: Bangladsh Railway, WASA, Electricity
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Features of Monopoly Market-
Single seller
Larger number of buyers
No close substitute product/unique
products
Restriction on the entry of new
firms
Sellers are Price Maker
Possibility of price discrimination
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Monopolistic Competition
Monopolistic competition is a market situation where both monopoly and competitive
elements are present.
It is a form of market in which there are large number of sellers selling differentiated
products which are similar in nature but not homogeneous. This are closely related goods
with a little difference in quality, taste, odour, shape.
Features
Large number of seller and buyer
No significant barriers to entry and exit
Product differentiation
Advertisement is an important marketing strategy
Non-price competition
Lack of perfect knowledge
Example: Different Beauty products, restaurant
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Oligopoly Market
A market structure in which a few (more than two) number of firms are strategically
interdependent.
Oligopoly is a market situation in which there are few firms producing either differential goods
or closely differential goods. The number of firms is so small that every seller is affected by
the activities of others.
Features
Small number of sellers
Interdependence of firms
Barriers to entry
Conflicting attitudes of firms and intense competition
Group behaviour
Price rigidity
Huge capital investment
Example: Steel, automobile, oil, banking industry
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Duopoly Market
It is a specific type of oligopoly where only two producers exit in the market for a specific
commodity such that actions of each seller has predictable effect on the other seller/rival.
Where only two firms have dominant control over market.
Example: Air travel industry
Monopsony Market
Marker dominated by single buyer. In economics, a monopsony is a market structure in which
a single buyer substantially controls the market as the major purchaser of goods and
services offered by many would-be sellers.
Features
One buyer
Low bargaining power of seller
Example: Farmers selling their products to a single firm 13
Oligopsony Market
Oligopsony is a market system where there are many sellers of a product or service and only
a few eminent buyers. As few buyers exists in this market situation, they could dictate the
sellers in the market in fixation of price for goods and services.
The three most important characteristics of oligopsony are:
1) an industry dominated by a small number of large buyers,
2) sellers face few alternatives for their goods, and
3) the industry has significant barriers to entry.
Example: McDonald’s,KFC, Burger King buys huge amount of quality meats from
American ranchers or others.
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Duopsony Market
A duopsony is an economic condition in which there are only two large buyers for
a specific product or service. Combined, these two buyers determine market demand,
giving them considerably influential bargaining power, assuming that they are
outnumbered by firms vying to sell to them.
Example: A town laving only two operating restaurants that are hiring workers.
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