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Models_of_Competition-or-Market-structures

The document outlines the four types of market structures: Perfect Competition, Monopoly, Monopolistic Competition, and Oligopoly, detailing their characteristics and conditions. It explains how these structures impact businesses and consumers, emphasizing the rarity of perfect competition due to barriers to entry. Additionally, it discusses market power and its influence on pricing and output in different market scenarios.

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Analyn Naceno
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© © All Rights Reserved
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Download as PDF, TXT or read online on Scribd
2 views

Models_of_Competition-or-Market-structures

The document outlines the four types of market structures: Perfect Competition, Monopoly, Monopolistic Competition, and Oligopoly, detailing their characteristics and conditions. It explains how these structures impact businesses and consumers, emphasizing the rarity of perfect competition due to barriers to entry. Additionally, it discusses market power and its influence on pricing and output in different market scenarios.

Uploaded by

Analyn Naceno
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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MODELS OF COMPETITION

HOW BUSINESSES COMPETE AND


WHAT IMPACT IT HAS ON ME.
WHAT ARE MODELS OF COMPETITION?

• a description of the type of market that a particular business or


industry operates in.
• Also known as Market Structure.
4 TYPES OF MARKET STRUCTURES

1. Perfect Competition
2. Monopoly
3. Monopolistic Competition
4. Oligopoly
PERFECT COMPETITION

• a market structure in which a large number of firms


(businesses) produce the same product.
• Only reason to choose one firm over another is the
PRICE
FOUR CONDITIONS FOR PERFECT
COMPETITION
1. Many buyers and sellers
People have lots of options to choose whom they buy from.

2. Identical Products
There are no differences between what is sold by different suppliers.
They are exactly the same!
FOUR CONDITIONS FOR PERFECT
COMPETITION (CONT.)
3. Informed Buyers and Sellers
Buyers know the prices and quality of product sold by all venders to
make the best decision
4. Free Market Entry and Exit
Businesses can enter the market when they can make money and
exit when they can’t.
WHAT TYPES OF BUSINESSES ARE PERFECTLY
COMPETITIVE?

• Farm Markets (ex. Public Market)


• Many farmers selling their vegetables (Many buyers and sellers)
• An eggplant from farmer Mark is equal to an eggplant from farmer Gregor
(Identical Products)
• Buyers can compare prices and quality by walking the market (Informed
Buyers/Sellers)
• Farmers choose to bring produce or not. Inexpensive to rent a space in the
market (Free Market Entry/Exit)
ARE THERE MANY PERFECTLY COMPETITIVE
BUSINESSES?
• NO! All 4 of the conditions must be met for perfect competition. This is very difficult in
most industries.
• Often people can only buy from one supplier
• Products are rarely identical
• Buyers often do not know if a product is cheaper/better at a different supplier
• Barriers to entry prevent free market entry
BARRIERS TO ENTRY
-FACTORS THAT MAKE IT DIFFICULT FOR NEW FIRMS TO ENTER A MARKET.

• Start-up Costs • Technology


The expenses that a new Some markets require a high
business must pay before the degree of technological
first product reaches the know-how. As a result, new
customer. entrepreneurs cannot easily
Ex. Rent, machines, product, enter these markets.
labor, etc. Ex. Software and
Pharmaceutical companies
MONOPOLY

• a market dominated by a single seller.


• They form when barriers prevent competitors from entering
the market. This is often because of the high costs to supply a
product.
• They take advantage of their monopoly power and charge high
prices.
GOVERNMENT MONOPOLIES

• Patents: Licenses that give inventors the exclusive right to sell their product for a certain
period of time.
• Industrial Monopolies: Rare cases where the government allows an industry to restrict
the number of firms in the market.
MONOPOLISTIC COMPETITION

• Many companies compete in an open market to sell products that are similar, but not
identical.
FOUR CONDITIONS OF MONOPOLISTIC
COMPETITION
1. Many Firms
Mono. Comp. do not have high start-up costs and so have more firms.

2. Few Artificial Barriers to Entry


Barriers to entry are relatively low.
FOUR CONDITIONS OF MONOPOLISTIC
COMPETITION
3. Slight Control over Price
Firms have some freedom to raise prices because each firm’s goods are a little different from
everyone else’s

4. Differentiated Products
Firms have some control over selling price because they can differentiate, or distinguish, their
products from other products in the market.
MONOPOLISTIC VS. PERFECT
COMPETITION
Perfect Competition Monopolistic Competition

Prices Lower, firms have no Higher, firms have some control


control
Profits Lower Higher in short term, but must
work hard to keep ahead of
rivals
Cost and Low costs, no variety Higher costs for differentiation,
Variety (identical products) wide variety
OLIGOPOLY

• A market dominated by a few, large profitable firms


MARKET POWER

The ability of a company to control prices and output

Markets dominated by one or a few firms (monopoly or oligopoly) have higher prices and
lower output. (great market power)
Markets with many sellers (monopolistic and perfect competition) have lower prices and
higher output. (little or no market power)
ACTIVITY

• 1. Suppose you are to have your business in the future, which market structure would
you prefer your business to fall? Why?
• 2. If you are to enter the business industry and choose to be on a perfect competition
market structure, what product will you sell and why?
ASSIGNMENT

• List down in your notebook at least 3 industries, companies or supplier that belong to
the different type of market structure: Monopoly, Perfect competition, Oligopoly and
monopolistic competition and give the features that make such company belong to that
certain market feature.

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