MODULE 8 : THE

MARKET
STRUCTURES
BY: MR. MENARD N. SOBRON
 OBJECTIVES:

• Define what is Market

• Differentiate the Traditional VS Virtual Marketplace
• Define the market structure
• Identify the unique characteristics of Perfect Competition,
Monopolistic Competition, Oligopoly, and Monopoly.
MARKET
A Market is where buyers and sellers meet to
exchange goods or services using an accepted
medium of exchange. For the most part, medium
of exchange refers to money or any form of
currency.
TWO GENERAL FORMS
OF MARKETS:
TRADITIONAL AND
VIRTUAL
TRADITIONAL VERSUS VIRTUAL MARKETPLACE
• Traditional market is distinguished by the presence of physical location. An example of
traditional market is a public market that is often seen in communities across the country
like Divisoria.
• Virtual Market are characterized by the absence of a physical location. Transactions are
settled online, and the face-to-face meeting of buyer and seller is not a requirement as the
items are usually shipped via third-party logistics provider. Payments may be done online
via credit or debit cards or bank transfers. Due to the dependent on the internet access,
virtual market are also sometimes known as e-markets.
MARKET STRUCTURE
• Refers to the form or organization of firms in an
industry. Distinction of market structure is made based
on the level of competition which is examined through
various criteria.
The following CRITERIA includes;
 CRITERIA
Number of Firms Product Differentiation
• The number of firms • Refers to the degree of
influences the level of similarity or homogeneity of
competition. The more firms products offered by firms in
in the market, the greater the the industry.
degree of competition.
 CRITERIA
A Single Firm’s Influence in Price
• Being a Price Taker may be driven
• A firm does not have the power
by other prevalent (most frequent
to increase its price is called a
or very common) in the market
price taker.
structure such as the homogeneity
• Price taker accepts the price that of products.
prevails, which may be a result
of the demand and supply
interaction in the market.
 CRITERIA
Barrier to Entry
• Refer to factors that factors that
affect the ease of setting up a
business in the industry.
• Low barriers to entry attract
more firms into the industry,
while high barriers to entry
discourage potential competitors.
Barrier to Exit
• Refer to factors that affect the ease of
closing business operations and
“exiting” the industry. Factor that
hinders firms from exiting an industry
is exit cost or costs associated with
leaving the industry. Such as
specialized technology and equipment
that are difficult to turn into money.
MARKET STRUCTURE
• The four market structure are Perfect Competition,
Monopolistic Competition, Oligopoly, and Monopoly.
 PERFECT COMPETITION
• Characterized by many firms selling homogeneous products. The high
number of sellers ensures that competition is high and firms have no control
on the market price. Additionally, the high number of firms is a result of the
absence of barriers to entry in this market structure. Finally, set up costs are
generally low in industries with perfect competition, which makes barriers
to exit minimal. As a result, businesses often come and go in the industry.
• Example of industries under perfect competition are those engage in
production and selling of agricultural products such as rice, corn, and
vegetables, poultry and meat industries.
MONOPOLISTIC COMPETITION
• A form of imperfect competition characterized by many sellers but with highly
differentiated products. This means that firms have the market power. Moreover,
the high number of firms is largely due to low barriers to entry and exist in this
market structure.
• Businesses that are successful in differentiating their products or services can
potentially capture a bigger share of the market.
• Human Capital Differentiation happens when the skills and expertise of firm’s
manpower become the selling point of a product or service such as hairstyles,
make up artist, educational institutions, training organization, and etc.
 OLIGOPOLY
• Characterized by having few sellers dominating the market. The behavior of
one firm depends on the behavior of the other firms in the market. This
gives firms control over prices. Firms in this market structure are not price
takers. There may be a high number of firms but only a few dominate the
market. Contrast to Perfect competition where no single firms dominates the
market and has control over price.
• Duopoly is a form of oligopoly in which there are only two firms dominate
in the industry.
 MONOPOLY
• Has only a single firm that controls the industry. As a result, the firm has the
ability to increase price in the market. Consumers have no choice but to pay
the price of goods dictated by the firm.
• Another characteristic of monopoly is the absence of a close substitute.
• Electricity distribution, water distribution, and most utility providers are
mostly monopolies more specifically, natural monopolies (are formed when
it is more efficient to have a single firm to provide the good or service due
to the extremely high costs associated with operations.)