Perfect Competition

Monopolistic Competition

Contestable Markets
Learning Competencies:
Differentiate various market structures in terms of:
a. number of sellers
b. types of products
c. entry/exit to market
d. pricing power
e. others
Activity: Race to the finish line!

There are so many products and businesses

in the market, and as an aspiring young
entrepreneur, you have to be competitive!
Think of three (3) specific and creative
ways that will help you win over your
competitors.
Competition
It means a rivalry among
sellers or businesses in the
market to obtain more
customers and earn more
profit.
Purchasing power
It is the ability of
consumers to buy products
depending on their
available money to spend.
Market Structures
These are categories of
competition and other
market characteristics that
influence economic
decisions.
Homogeneous products
These are goods or services
that are similar and have
the same purpose which
give the same satisfaction
to consumers.
Example
When you go to the Baguio public
market, you can find saba bananas
sold by many sellers. This product
is a homogeneous product because
it is the same product sold by
many fruit and vegetable sellers.
Heterogeneous products
These are products that are
differentiated or made with a
unique attribute which
distinguishes them from
other competitors’ products.
Example
 When Aling Maria, Aling Teres, Mang Pedro and Mang Kanor
decided to make toron out of the saba they were selling,
each of them thought of a unique toron filling to compete
with one another. Aling Maria made toron with kamote,
Aling Teresa made toron with langka, Mang Pedro made
toron with malagkit, while Mang Kanor made toron with
cheese. This time they sold differentiated products
because their toron are made with distinct fillings,
allowing their customers to choose the toron of their
liking.
Barriers to entry
Examples:

High taxes, customer loyalty—when buyers have

product preferences even when new or better
products are introduced, strong brand identity—
when existing brands are very popular, and high
switching cost—when changing from one product
to a new product is more expensive
Barriers to exit
Difficulty to sell or relocate the
business because of the uniqueness of
the business, high cost of leaving the
market—costs that go with closing,
selling or relocating a business, and loss
of trust and confidence from customers.
Pricing Power
The ability of businesses
or sellers to influence
changes in the price of
products.
Price takers
Those that accept and follow the
existing market price. They are
those who sell homogeneous
products and basic commodities
like rice and wheat.
Price searchers
Those that have the power
to set or identify the price.
They are usually makers or
sellers of differentiated
products.
Perfect competition
It is identified to be the ideal and
most competitive market structure
because it many sellers with more
opportunities to maximize profit, and
at the same time, many buyers with
more opportunities to increase
satisfaction.
Example for perfect competition

It is the existence of on-line sellers. In

social media alone, there are many
“ukay-ukay” retailers where the same
kinds of second-hand items are being
sold such as clothes, shoes, bags, and
appliances.
Monopolistic Competition

It is the second most

competitive market structure
where businesses or sellers
offer differentiated products
Non-price competition
It is undertaken where
differentiation is done. Sellers
may attract buyers through
creative advertising strategies
or unique packaging.
Contestable market
It is where the number of sellers is not
important, but the barriers to entry and
exit to the market. Regardless of the
number of sellers, in a contestable market
there must be an ease to start a business
and compete, and the absence of sunk
costs.
Sunk costs
These are expenses in opening and
operating a business which cannot
be recovered. The absence of sunk
costs will make it easier for the
entry and exit of a business in a
market.
Example of a contestable market
 In Baguio City, the transient house/ room business. If you
have a house with spare rooms or living spaces, you may enter
the transient business where you rent out your place to people
at a given period of time. You do not have any sunk cost
because you just made profit from what you already have.
You also have an idea when business will be at its peak which
will lead you to improve your facilities or divert to other
source of income when business is slow. You also have the
option to accept and follow the existing rent rates, or you may
set a competitive price if you have other facilities that renters
may use like a swimming pool or a garage for their vehicles.