LESSON 2.

MARKET
STRUCTURES
 Market Structures

Refers to the competitive environment in which buyers

and sellers operate. Each structure will described in terms of
nature of the product being sold, the number of buyers and
sellers in the market, and the ease of entering or exiting the
market.
Competition is rivalry among various sellers in the market.
As students, we are familiar with the word competition. We are
exposed to competition in school: spelling bees, quiz bees, and
sports fests.
 There are varying degrees of competition in the market
depending on the following factors:

– Number and size of buyers and sellers.

– Similarity or type of product bought and sold.
– Degree of mobility of resources.
– Entry and exit of firms and input owners.
– Degree of knowledge of economic agents regarding
prices, costs, demand and supply conditions.
 PERFECT COMPETITION

– As a term suggest, perfect competition implies an ideal

situation for the buyers and sellers.
The following are characteristics of a perfectly competitive
market:
– There are so many buyers and sellers that each has a
negligible impact on market price. Change in output of a
single firm will not perceptibly affect market price of the
good.
– A homogeneous product is sold by sellers, which means the
products are highly similar in such a way consumers will have no
preference in buying from one seller over another. The goods
offered for sale are all exactly the same or are perfectly
standardized.
– Perfect mobility of resources refers to the easy transfer of
resources in terms of use or in terms of geographical mobility.
– There is perfect knowledge of economic agents of market
conditions such as present and future prices, costs, and economic
opportunities.
– Market price and quantity of output are determined exclusively by
forces of demand and supply.
 In this market, there are large numbers of buyers and sellers.
Sellers offer a standardized product, a homogeneous good that is
not different from the others in the market. The sellers can easily
enter into or exit from the market as there are no barriers to entry
to and exit from the industry. The buyers and sellers are well
informed about prices and sources of the goods.
Because of the large number of buyers and sellers, no
individual decision - maker can significantly affect the price of the
product changing the quantity it buys or sells. Thus, the seller is a
price taker and has to follow the market price in selling his/her
good.
 IMPERFECT COMPETITION

– In other markets, one or more of the assumptions of perfect

competition will not be met; thus, the market becomes
imperfectly competitive.
 MONOPOLY
exists when a single firm that sells in that market has
no close substitutes. The existence of a monopoly depends on
how easy it is for consumers to substitute the product for those of
other sellers.
– A single seller has control of entire supply of raw materials.
– Ownership of patent or copyright is invested in a single seller.
– The product will enjoy economics of scale, which are savings
from a large range of outputs
– Grant of a government franchise to a single firm.
 MONOPOLISTIC COMPETITION

– As consumers, we love it when we have a wide variety of goods

to choose from an expensive gadget, clothes or car that has all
latest features we look for those that are different and not
mass – produced, not only by brand name but also by the
model, style and additional convenience.
– The firm tends therefore to engage in non – price competition.
This may include better service, product guarantees, free home
delivery more attractive packaging better location and
advertising.
 OLIGOPOLY

– Few sellers account for most of or total production since

barriers to free entry make it difficult for new firms to enter.
Strategically interacting firms try to raise their profits by
colluding with each other to raise prices to the detriment of
consumers. Producers of oil from all around the world can
manage to raise prices agreeing with each other on what
prices to charge the consumers. Countries that use a lot of
oil have no choice but to by from these producers at high
prices.
THANK YOU!