Market Structure

Market Structure
Market structure identifies how a market

is made up in terms of:

The number of firms in the industry

The nature of the product produced
The degree of monopoly power each firm has
The degree to which the firm can influence price
Profit levels
Firms behavior pricing strategies, non-price competition,
output levels
The extent of barriers to entry
The impact on efficiency

Market Structure
Perfect
Competition

Pure
Monopoly

More competitive (fewer imperfections)

Market Structure
Perfect
Competition

Pure
Monopoly

Less competitive (greater degree

of imperfection)

Market Structure
Pure
Monopoly

Perfect
Competition

Monopolistic Competition

Oligopoly

Monopoly

The further right on the scale, the greater the degree

of monopoly power exercised by the firm.

Market Structure
Importance:
Degree of competition affects

the consumer will it benefit

the consumer or not?
Impacts on the performance
and behavior of the company/companies involved

Market Structure
Characteristics of each model:
Number and size of firms that make up
the industry
Control over price or output
Freedom of entry and exit from the industry
Nature of the product degree of similarity of the
products in the industry (extent to which products can be
regarded as substitutes for each other)

Market Structure
Characteristics: Look at these everyday products what type of
market structure are the producers of these products operating
in?

Mercedes CLK Coupe

Remember to
think about the
nature of the
product, entry and
exit, behavior of
the firms, number
and size of the
firms in the
industry.

Canon
SLR Camera
Bananas

You might even

have to ask what
the industry is??

Electric
Guitar
Jazz
VodkaBody

Perfect Competition
One extreme of the market

structure spectrum
Characteristics:

Large number of firms

Products are identical
consumer has no reason to
express a preference for any firm
Freedom of entry and exit into
and out
of the industry
Firms are price takers have no
control
over the price they charge for
their product
Each producer supplies a very
small proportion
of total industry output
Consumers and producers have
perfect knowledge about the
market

Monopolistic or Imperfect Competition

Characteristics:
Large number of firms in
the industry
May have some element of
control over price due to the
fact that they are able to
differentiate their product
in some way from their
rivals products are
therefore close, but not
perfect, substitutes
Entry and exit from the
industry is relatively easy
few barriers to entry and
exit
Consumer and producer
knowledge imperfect

Oligopoly
Competition between the few
May be a large number of firms in the industry but the
industry is dominated by a small number of very large
producers
Concentration Ratio the proportion of total

market sales (share) held by the top 3,4,5, etc

firms:

A 4 firm concentration ratio of 75% means the top 4 firms

account for 75% of all
the sales in the industry

Oligopoly
Music sales
The music industry has a
5-firm concentration ratio
of 75%. Independents
make up 25% of the
market but there could be
many thousands of firms
that make up this
independents group. An
oligopolistic market
structure therefore may
have many firms in the
industry but it is
dominated by a few large
sellers.
Market Share of the Music Industry 2010 IFPI: http://www.ifpi.org/site-content/press/20030909.html

Oligopoly
Features of an oligopolistic market structure:

Price may be relatively stable across the industry

Potential for collusion or conspiracy
Behavior of firms affected by what they believe their
rivals
might do interdependence of firms
Goods could be identical or highly differentiated
Branding and brand loyalty may be a potent source
of competitive advantage
Non-price competition may be prevalent
Game theory can be used to explain some behavior
High barriers to entry

Monopoly
Pure monopoly where

only
one producer exists in the
industry
In reality, rarely exists
usually
some form of substitute
available!
Firms may be investigated
for examples of monopoly
power when market share
exceeds 25%
Use term monopoly power
with care!

Monopoly
Monopoly power refers to cases where firms

influence the market in some way through their

behavior determined by the degree
of concentration in the industry

Influencing prices
Influencing output
Erecting barriers to entry
Pricing strategies to prevent or stifle competition
May not pursue profit maximization encourages unwanted
entrants to the market
Sometimes seen as a cause of market failure

Monopoly
Origins of monopoly:
Through growth of the firm
Through uniting, merger or takeover
Through acquiring patent or license

Monopoly
Summary of

characteristics of firms
exercising monopoly
power:

Price could be deemed

too high, may be set to
destroy competition
(destroyer or predatory
pricing), price
discrimination possible.
Efficiency could be
inefficient due to lack of
competition (Xinefficiency) or

could be higher due to

availability of high profits

Innovation - could be high because

of the promise of high profits,
Possibly encourages high
investment in research and
development (R&D)
Collusion possible to maintain
monopoly power of key firms
in industry
High levels of branding,
advertising
and non-price competition

TYPE OF
MARKET
STRUCTURE

Product

No. of
sellers

No. of
buyers

Barriers
to entry
of exit
from the
industry

Relative influence
over r the price of
the product

Pure
Competition

Homogenous

Many

Many

None

Little or no influence;
price takers

Monopoly

Unique

One

Many

Very high

Absolute influence;
seller is price maker

Monopolistic
Competition

Slightly
differentiated

Many

Many

Low

Strong influence; but

usually a price taker

Oligopoly

Slightly
differentiated

Few

Many

Very high

Very strong influence;

usually a price maker
with the others

Monopsony

Usually
unique

Few

One

Very high

Absolute influence;
buyer is price maker

Oligopsony

Slightly
differentiated

Few to many

Few

Very high

Very strong influencebuyer; usually a price

maker with the others

end

RA 7394 :The Consumers Act of the Philippines is the policy of the

state to protect the interest of the consumer, promote his general welfare
and to establish standards of conduct for business industry.
1. The right to basic needs,

which guarantee survival,

adequate food, clothing,
shelter, health care.
Education and sanitation
to health and life.

 2. The right to

safety, which is
the right to be
protected
against the
marketing of
goods or the
provision of
services that are
hazardous to
health and life.

 3. The right to

information, which is the

right to be protected
against dishonest
misleading advertising or
labelling and the right to
be given the facts and
information needed to
make an informed choice.

 4. The right to choose,

which is the right to

choose products at
competitive prices with an
assurance of satisfactory
quality

 5. The right to

representation, which is
the right to express
consumers interests in
making and execution of
government price
policies.
6. The right to redress,
which is the right to be
compensated for
misrepresentation,
shoddy goods or
unsatisfactory services.

 7. The right to consumer

education, which is the

right to acquire the
knowledge and skills
necessary to be an
informed customer.

 8. The right to a healthy

environment, which is the

right to live and work in
an environment that is
neither threatening nor
dangerous and, permits a
life of dignity and wellbeing.

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Top of Form
Item# Authentic-CHANEL-255-Double-FlapChain-Shoulder-Bag--Complete-256
PhP61,888.88
This item is SOLD!
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Product Description
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