MARKET

STRUCTURES
Week 4
OBJECTIVES:
1. Differentiate various market structures.
2. Value the concept of Market Structures.
3. Create a Venn diagram that shows the
difference of various market structures.
● A market structure refers to the competitive
environment in which buyers and seller operate.

● Competition is rivalry among various sellers in the

market.

● The market is a situation of diffused, impersonal

competition among sellers who compete to sell their
goods and among buyers who use their purchasing
power to acquire the available goods in the market
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

Perfect competition implies

an ideal situation for the
buyers and sellers.
 Characteristics of Perfect Competition

❖ 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. No single buyer can
influence the price since he/she purchases only a
small amount. Buyer cannot extract quantity
discounts and credit terms.
Characteristics of Perfect Competition

❖ A homogenous product is sold by sellers, which

means the products are highly similar in such a
way consumer will have no preference in buying
from one seller over another. The goods offered
for sale are all exactly the same or are perfect
standardized.
Characteristics of Perfect Competition

❖ 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.
Characteristics of Perfect Competition

❖ Market price and quantity of output are

determined exclusively by forces of demand
and supply.

❖ Easy entry into and exit from the market

means there are no significant barriers.
Characteristics of Perfect Competition

❖ Market price and quantity of output are

determined exclusively by forces of demand
and supply.

❖ Easy entry into and exit from the market

means there are no significant barriers.
 IMPERFECT COMPETITION

In other markets, one or more of the

assumptions of perfect competition will
not be met; thus, the market becomes
imperfectly competitive.
Different Types of Imperfectly
Competitive Market:

1. Monopoly
- A monopoly exists when a single firm
that sells in that market has no close
substitutes.
It can exist for the following reasons.

❖ A single seller has control of entire supply

of raw materials.
❖ Ownership of patent or copyright is
invested in a single seller.
❖ The producer will enjoy economies of scale,
which are savings from a large range of outputs.
❖ Grant of a government franchise to a single
firm.

❖ There are barriers to entry that may cause

others to stay out of the market.

❖ The monopolist faces a downward-sloping

demand curve, meaning, the lower the price, the
higher the quantity.
Monopolistic Competition

Products are differentiated

and entry and exit are easy.
Characteristics:
❖ A blend of perfect competition and monopoly.
❖ Firms sell differentiated products, which are
highly substitutable but are not perfect
substitutes.
❖ Many sellers offer heterogeneous or
differentiated products, similar but not identical
and satisfy the same basic need.
❖ Changes in product characteristics to
increase appeal using brand, flavor,
consistency, and packaging as means to attract
customers.
❖ There is free entry and exit in the market
that enables the existence of many sellers
❖ It is similar to a monopoly in that the firm
can determine characteristics of product and
has some control over price and quantity.
 OLIGOPOLY
An oligopoly is a market dominated by
a small number of strategically
interacting firms. Few sellers account
for most of or total production since
barriers to free entry make it difficult
for new firms to enter.
Characteristics:

❖ Action of each firm affects other firms;

and
❖ Interdependence among firms.
These strategically interacting firms try to
raise their profits by colluding with each
other to raise prices to the detriment of
consumers.
 SIGNIFICANCE OF THE MARKET
STRUCTURE

The type of market structure in which the

business operates will determine the amount of
market power or control the business owner
will enjoy. Greater market power means greater
ability to control prices, differentiate the
products one offers for sale, thus, leading to
opportunities for more profits.