CONTENTS

• Market
• Market Structure
• Perfect Competition
• Characteristics and Price Determination
• Demand Curve
• Monopoly
• Characteristics and Price Determination
• Demand Curve
• Oligopoly
• Characteristics and Price Determination
• Demand Curve
• Monopolistic Competition
• Characteristics and Price Determination
• Demand Curve
 MARKET

 “Market” refers to all

such systems or
arrangements that bring
the buyers and sellers in
contact with each other to
settle the sale and
purchase of goods .
 MARKET STRUCTURE
• Market structure makes it easier to understand the
characteristics of diverse markets, like:
• How firms are differentiated and categorised based on the
types of goods they sell (homogeneous/heterogeneous)
and;

• How their operations are affected by external factors and

elements.
 Perfect Competition:
Characteristics and Price
Determination
• Buyers and sellers of a
commodity are in a close
contact with each other.

• Price of the same

commodity tends to be
one throughout that area.
Concept

A form of market where there are a large number of

buyers & sellers of a commodity.

Homogeneous products are sold with no control over

price by an individual firm.
 FEATURES OF PERFECT COMPETITION

1. Large number of firms or sellers

2. Large number of buyers
3. Homogeneous product
4. Perfect knowledge
5. Free entry and exit of firms
6. Perfect mobility (no exclusive access to any
factor of production)
A Firm under perfect competition is a price taker
not a price maker.
I. No. of firms are very large
II. Homogeneous products

 Demand curve of the firm under perfect

competition is
 Horizontal
 Perfectly Elastic. (E=∞)
EXAMPLES (CLOSEST)

• Stock Market
• Foreign Exchange Market (in the absence of the interventions by
National Monetary authorities)
• Vegetable and Fruit Vendors
 MONOPOLY:
CHARACTERISTICS
AND PRICE
DETERMINATION
 CONCEPT

A form of market in which

 there is a single seller of a product

 no close substitutes.

 Example: Railways

14
 FEATURES OF MONOPOLY

 One seller and large number of buyers

 Restrictions on the entry of new firms:- usually
have patent rights
 No close substitutes

 Full control over price

 Price discrimination

15
 TYPES OF MONOPOLY

I. Grant of a patent right (Patents for prosthetic limbs)

II. Control of strategic raw material for an exclusive production

process (applicable in medical field)

III. Natural monopoly (Meta (formerly Facebook), Google, and

Amazon have built natural monopolies for various online services)

IV. Governmental owned and operated (Utility Services)

V. Government granting exclusive right to a private firm to operate

under its regulation (Railways).

VI. Sole manufacturer of a product. 16

 MONOPOLISTIC
COMPETITION: FEATURES
AND PRICING
CONCEPT OF MONOPOLISTIC COMPETITION

 Many sellers of the product, but the product of

each seller is somewhat different from that of
other.

 Many sellers sell a differentiated product

 Example: Brands of Toothpastes

FEATURES OF MONOPOLISTIC COMPETITION

1. Large number of buyers & sellers

2. Product differentiation
3. Freedom of entry and exit
4. Selling cost: to promote sales
5. Less mobility
6. Lack of perfect knowledge
7. Non-price competition
8. More can be sold only at lower price.
Oligopoly –Meaning,
Features
 MEANING OF OLIGOPOLY
 A few firms selling homogeneous or differentiated products.

 The action of one firm is likely to affect the others.

 An oligopoly industry produces either homogeneous product

or heterogeneous products.

Homogeneous Product: Perfect/Pure Oligopoly Heterogeneous

Products: Imperfect/Differentiated Oligopoly.

21
FEATURES OF OLIGOPOLY
 Interdependence

 Advertisements

 Competition

 Barriers to entry of firms

 Economies of scale
 High capital requirements due to plant cost,
advertisement costs, etc.
 Control over essential & specialized inputs
 Exclusive patents and licenses
 Existence of unused capacity which makes the industry
unattractive

22
FEATURES OF OLIGOPOLY

 Lack of uniformity
 No unique pattern of pricing behavior

23
 FEATURES OF THE FOUR MARKET STRUCTURES

Type of Number Freedom of Nature of Examples Implications for

market of firms entry product demand curve
faced by firm

Perfect Very Homogeneous Cabbages, carrots Horizontal:

competition many Unrestricted (undifferentiated) (approximately) firm is a price taker

Monopolistic Very Builders, Downward sloping,

Unrestricted Differentiated but relatively
competition Many convenience
stores elastic

Undifferentiated Cement Downward sloping.

Oligopoly Few Restricted Relatively inelastic
or differentiated cars, electrical (shape depends on
appliances reactions of rivals)

Local water Downward sloping:

Pure One Restricted or Unique company more inelastic than
Monopoly completely oligopoly. Firm has
blocked considerable
control over price
Thank You
 MARKET STRUCTURE & PRICE DETERMINATION

Market structure and commodity pricing are closely

related to one another.

 PerfectMarket: price is determined by the industry & the

firms cannot alter the prices.
In perfect market, firm is price taker not the price maker.

 Monopoly : firm is a price maker, because it has no close

substitutes for its commodities.
Firm also charges different prices, for the same product,
from different buyers.
 CONT…

 Monopolistic Competition: there exists product

differentiation, there cannot be one price that may prevail
in the market.

 Oligopoly Competition: An oligopoly is

a market structure in which a few firms dominate. When
a market is shared between a few firms, it is said to be
highly concentrated.