BBA SEM – 1 MICRO ECONOMICS
UNIT – 5 Market Structure
What is Market ?
a market is a place where the
commodities and services are sold by
the sellers and bought by the
consumers.
For example, vegetable market, cloth
market, gold market etc.
in economics, the market has a special
meaning. In definition of market 'the
place' is not important. Secondly, the
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buyer and seller are notexpected to
remain face to face .
so according to economic view market
means not specific place for
bargaining and through telephone or
by any mean the selling and buying
activity can be done indirectly.
Classification Of Markets :
1. Geographical 2. Elements 3. Methods
coverage of of Sale
Competiti
on
(1) Local Market Perfect competition Retail market
(2) Regional Market Monopoly Wholesale Market
(3) State Market Monopolistic Spot and forward
Competition Market
(4) National Market Monopsony
(5) International Bilateral monopoly
Market
Duopoly
Oligopoly
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(1) Geographical coverage :
This classification is based on the area of the
market. It shows how much area it covers.
There are different areas. They may be local,
regional, state, national or international.
(1) Local Market :
Some commodities are sold or purchased
in local market. Primary goods like milk,
vegetables, sweets, grossary and day-to-
day required commodities are sold and
purchased from the local market.
Same way, the services of tailor, teacher,
doctor, advocate, barber etc. are also
purchased at local market.
(2) Regional Market:
The form of this market is somewhat
greater than local market. Some specific
commodities have a regional market.
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For example, some particular goods like
'Timru', 'Gheetola', 'Rayan' etc. have
limited sale in North Gujarat.
Some goods have wide market in middle
Gujarat. Some goods like 'Ghari',
'Sutarfeni' and 'Halvasan' have a
regional market in South Gujarat. They
are purchased and sold.
3) State Market:
Some markets are limited for particular
state. For example the tamil dress Lungi",
the Rajasthani dresses are mostly and
sold in Tamilnadu and Rajasthan
respectively.
The market for sweets like 'petha' and
'Rasgulla' and 'Misti Dohi' have markets in
earchased West Bengal Particular sarees
are sold in Maharashtra 'Makke ki Roti
Aur Sarson Da Sag' are famous in Punjab.
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Some states have their own religious and
social celebrations. According to them,
different markets exist in respective
states.
(3) National Market:
If the commodity is sold and bought
in the entire country, it becomes
national market.
There are many commodities and
services, which are limited in the
whole country.
Though it has national market. For
example, milk products have local,
regional and even national market
also.
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(4) International Market:
This type of market and concerned with
international level.
Gold, silver, wheat, cloth and machines
are sold and bought on international
base.
After second world war, many countries
have become strong in economic
development. Due to that, the scope of
international trade has expanded
beyond our imagination. The
international transportation and
communication has also developed
rapidly.
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Perfect Competition:
(1) In this competition, the number of
buyers and sellers are in ultimately
large. One seller of buyer has no
influence on the marketprice.
(2) In the perfect competition, the sellers
sell identical commodities There will be
no change in commodities sold by the
seller.
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(3) Each and every seller and buyer possess
perfect knowledge about the market
conditions.
(4) Under this competition, the factors of
production are changeable It means one
business can changed into another
business.
Meaning and Features of Perfect
Competition :
(1) Large number of buyers and sellers:
In this competition, there are large
number of buyers and sellers. Here, there
will be no influence of individual buyers
or sellers on the market. There will be no
effect on the quantity of product or the
price of the product. Because they have a
little contribution in market activity. So
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even if having the large number, the firm
has to follow the other firms in price and
production.
(2) Homogeneous Product:
In this method, the products sold by the
different firms are completely
homogeneous and identical. The people
accept all types of produced commodities
because they are
identical and say common. Any new firm
has to accept the general price prevailing
in the market.
(3) Free entry and free exit for firms:
Under this competition, any
businessman can enter the business.
There will be no bar in his way.
Similarly, it is not satisfied with the
business either he can change it or
he can leave the business. In this
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action, there will be no trouble he
has to face. Generally, the new
businessman gets super profit in the
initial stage. So, he would not like
either to change the business or to
shut up the business. In long term he
can wind up it, if he feels better.
(4) Perfect mobility of factors of
production:
It is suppose that in this competition
the factors of production have perfect
mobility. It means the factors of
production can be transfered from one
business to another business. In practice
this concept does not find proper. The
alive factors like labourers and
entrepreneurs can be hardly transferred
from one business to another business
because they have got know how of
certain business. So how can they adjust
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in another business so easily ? Even if, it
is believed that if the businessman is not
satisfied in this current business, he can
transfer his business easily.
(5) Non-existence of transport:
It is suppose that in this competition
the factors of production from one
place to another place. It does not
mean the transport cost is free.
Transport cost is there but that cost
is not added in the selling price
because if transport cost is added in
selling price, the prices may differ.
Some markets are far from
production unit, some markets are
nearer. If transport cost added for
far markets, the selling price will be
higher and for near markets, the
selling price will be lower.
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Monopoly:
Mono means 'one' and poly means 'seller
or producer'.
When in market only one seller and
producer exists it is a monopoly market
there will be no close substitude
commodity of monopoly in the market.
It is the opposite to perfect competition.
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when only one producer , there will be no
question about competition.
Meaning and features of Monopoly:
(1) Single seller:
By the definition of monopoly we can
understand that there will be only
one seller or producer.
The single producer may be in the
form of personal owner or a
partnership or a joint stock company.
The monopolist commands the whole
market.
Price decisions, planning of the
business, market span and all the
elements of the business, selling and
marketing are in the hands of
monopolist.
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(2) Absence of close substitutes:
In monopoly there will be absence of
close substitutes in the market.
For example, there is only one firm in
India which produces Colgate Paste.
Other products are also there like
Babul, Pepsodent etc.
but they have different taste, colour
and pattern. They can be substitute at
the time of cross elasticity.
(3) Closed entry:
Under monopoly, no rivals are found in
the market because the monopolist has
created a strong barriers around his
product.
This barriers do not allow the other
producers to enter the field of monopoly
product.
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(4) Less than perfectly elastic demand
curve:
The demand curve of monopoly market
is less than perfectly elastic demand.
The demand curve is sloping
downwards from left to right.
Types of monopoly :
1.
natural
5. perfect
and 2. Legal
imperfect
Types of
monopoly
[Link] and 3. private
discriminating and public
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(1) Natural monopoly :
This monopoly exists due to natural conditions. When a
single firm enjoys the monopoly of natural supply of
commodities, such monopoly arises.
For example, Denmark for milk products, Brazil for
coffee, South Africa for diamonds, Gulf countries for
mineral oil etc.
(2) Legal monopoly:
When for the particular product is protected to avoid
the duplication by the government fertilizer companies,
Gujarat electricity , Gujarat buildings and many
industries governed by the air and services government
are under legal monopoly.
currency issued by Reserve Bank of India is also an
example of legal Monopoly .
(3) Private monopoly and public monopoly:
Private monopoly is related with private companies.
Their purpose is to gain maximum profits only but in
public monopoly, it is related with government
undertakings.
It has the main purpose greater welfare of greater
number.
In case of private monopoly, all the decisions about
production, selling and level of pricing are decided by
monopolist or private organization.
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They absolutely decide the use of capital fund and
profits which they have gained.
(4) Simple monopoly and discriminating
monopoly:
Simple monopoly deals with common price charging
from all the consumers but discriminating monopoly
deals with different prices charged from different
consumers.
(5) Perfect and imperfect monopoly or confident
and pessimist monopoly:
Any monopolist who is sure about his monopoly and
has the feeling of safety in future, it is called perfect or
confident monopoly.
But any monopolist who is feeling unsafe for his future
monopoly, it is called imperfect or pessimist monopoly.
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Monopolistic Competition :
Meaning :
this market is a blend of monopoly and competition. the
producer is monopolist for his product and all types of
decisions will be taken by him.
Same way there will be competition in the market among the
different producers.
in this market we feel 'cut throat competition' among the
producers because each producer wants to command the
market.
so he advertises his producer through different medias and
tries to prove his product as the best product.
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Meaning and features of Monopolistic
Competition :
(1) Existence of many firms:
Under this competition, there are many firms producing
different goods. Their products are differentiated
product which are relatively close substitutes for each
other. Individual firms have no influence on supply,
price and marketing, because contribution of each firm
is very nominal. Any firm has no effect on the rivals.
(2) Product differentiation:
According to Prof. Chamberlin, the distinguishing
feature of monopolistic competition which makes it a
blend of monopoly and competition is the
differentiation of products. The firms do not produce
homogeneous or identical products but d'ifferentiated
products. Prof. Stonir and Hague have said, "Product
differentiation means that products are different in
some ways but not altogether so." In India, there are
many such products like different bath soaps, tooth
paste, fans and T, V.
(3) Existence of selling costs:
In this competition, the selling cost will be
comparatively higher because of many producers. There
will be 'cut throat' competition among the producers.
Each and every producer wants to command the
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market. So, he will try his level best to promote the
selling of his product in the market. He will advertise his
product through different media at higher costs. He will
apply different schemes to increase his selling. So, the
selling expenditure will be higher.
(4) Different prices for differentiated products:
In this competition each firm produces a differentiated
product. They take the help of advertisement or other
by other means, try to promote the selling of their
products. They specify the different quality, design,
colour, packing etc. Take the example of different soaps,
paste, shampoos, chocolates etc.
(5) Control over price:
As we have said above, there are many producers in the
market. In spite of that, they do not dare to change the
price of their products. If any producer does so, due to
heavy competition his product will be thrown from the
market because the consumer does not accept the price
rising. So, the producers have to control in the market.
He can not change the prices without considering its
effects.
(6) Ease of entry and exist:
Under this competition, there will be no difficulty to
enter the market. Any businessman can easily start his
business and after sometime if he is not satisfied with
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the business, he can leave off the business without any
difficulty.
Oligopoly :
Meaning :
The word 'oligopoly' is a Greek word 'oligo'
means 'a few and 'poly' means 'sellers' or
producers'.
In this competition, there are a few sellers and
producers. A few means there are 3 to 7 sellers.
It is between duopoly (two sellers) and
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monopolistic competition (large number of
sellers).
For example, T.V., mobiles, bicycles, scooters etc.
are under oligopoly.
Let us examine the features of oligopoly
Features of monopoly :
(1) Few sellers or Producers:
As, we have seen in the meaning of oligopoly,
there are limited (3 to 7) sellers or producers.
They sell or produce homogeneous goods.
We see, different types of T.V., mobiles,
bicycles, scooters sold in the market.
They are homogeneous goods. They are given
different identity but their functions are same
respectively.
(2) Interdependence of firms:
In this competition, we find interdependence
among different firms.
The main production company allots the
process of production of particular product
among some small contractors' industries.
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The main company has to assemble the parts
of that product and put into the market to sell
in the name of the main company.
For example - suppose a T.V. production
company is there. It will allot the work of
cabinet making to one contractor, tube
making to second contractor, other parts of
T.V. to different contractors. After that the
main company will assemble them and the
final product will be sold in the market with
some identical name and trade market.
3) Importance of advertising and selling
costs:
In Oligopoly competition, importance is given
to advertisements also. Though there are a
few producers have to spend huge funds after
advertisement and selling costs.
Due to heavy advertisements, different
schemes, discounts, naturally the ratio of
selling costs will be the higher and perhaps the
highest.
(4) Indeterminate demand curve:
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The industry working under this system is
indeterminate because its output remains
uncertain.
Its rivals, any time, create trouble for it.
Under this situation, the demand curve of the
industry becomes indeterminate.
Suppose, the rival adopts non-price
competition, it means that he does not change
the price but adopts other steps like gift
system, home delivery system, replacement
system, free service system. The result will
come that the rival's product will be
demanded more and that will disturb the
demand curve. We can not pre-decide the
behaviour of rivals.
(5) Conflicting attitudes of firms:
In oligopoly, the different firms have no co-
operation among them.
They try to devalue each other. The element
of competition makes their relations
conflicting.
Each producer wants maximum profits. To
gain it, they are ready to take any positive or
negative steps against their rivals.
(6) Price rigidity:
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Generally, it is found under this competition
that the prices remain sticky or rigid.
Inspite of having 'price leadership', some units
try to increase price, others do not follow it.
As a result, the demand for the product of
price-rising unit will reduce and ultimately
they have to suffer loss. In case, if they
decrease the price of their product, the other
rivals also follow them.
So, there will be no benefit to those units
Monopsony :
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There is a single buyer any many sellers it
is considered as a monopsony market.
Duopoly :
a situation in which two suppliers dominate the
market for a commodity or service.
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Bilateral Monopoly :
A bilateral monopoly exists when a market has only one
supplier and one buyer.
The one supplier will tend to act as a monopoly power
and look to charge high prices to the one buyer.
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