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The Market Structure E62

Perfect competition is characterized by many small sellers and buyers, identical products, and easy entry and exit. The key features of other market structures are: Monopoly has a single seller, a unique product, and barriers to entry. Monopolistic competition has many small differentiated producers and easy entry/exit. Oligopoly has a small number of dominant firms, may have homogeneous or differentiated products, and entry is difficult due to barriers like economies of scale.

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150 views27 pages

The Market Structure E62

Perfect competition is characterized by many small sellers and buyers, identical products, and easy entry and exit. The key features of other market structures are: Monopoly has a single seller, a unique product, and barriers to entry. Monopolistic competition has many small differentiated producers and easy entry/exit. Oligopoly has a small number of dominant firms, may have homogeneous or differentiated products, and entry is difficult due to barriers like economies of scale.

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KathleenAlfaroDeloso
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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CHAPTER 6

THE MARKET STRUCTURES


PERFECT COMPETITION

is a market structure with many well-informed sellers


and buyers or an identical product and no barriers to
entering and leaving the market.
TYPES OF MARKET STRUCTURES

Perfect Competition
Monopoly
Monopolistic Competition
Oligopoly
Characteristics of Perfect
Competition

1. Large Number of small firms


2. Homogeneous product
3. Very easy entry or exit from the
market
Large number of firm

it is composed of many firms and buyers, that is, a


large number of independently-acting firms and buyers,
each firm and buyer being sufficiently small to be
unable to influence the price of product transacted in
the market.
Homogeneous product
The products offered by the competing firms are
identical not only in physical attributes but are also
regarded as identical by buyers who have no
preference between the products of various
producers.
Very easy entry and exit
- This means that there are no barriers to
entry or impediments to the exit of existing
sellers.
- New firms face no barriers to entry.
- Barriers can be in the form of financial,
technical, or government imposed
barriers such as licenses, patents, permits,
copyrights, etc.
MONOPOLY

is the opposite extreme of perfect competition.


Under monopoly, the consumer has only two choices
Either buy the monopolists product or none at all.
i
Characteristic of Monopoly

1. Single seller or producer


2. Unique product
3. Impossible Entry
Single seller or producer

A monopoly market is comprised of a single supplier


selling to a multitiude of small, independntly-acting buyers.

Monopoly means that a single firm is the industry.

One firm provies the total supply of a productin a given


market.
Unique product

A unique product means that there are no close


substitutes for the monopolists product.
Impossible entry

Barriers to entry are so severe in a monopoly so that it is


impossible for new firms to enter the market.
MONOPOLISTIC COMPETITION

is a type of imperfect competition such that many


producers sell product that are differentiated from one
another and hence are not perfect substitles.
Characteristic of Monopolistic
Competition
Many small sellers
- condition is met when each firm is so small relative
to the total market that its pricing decisions have a
negligible effect on the market price.
Differentiated product

is the process of creating real or apparent differences


between goods and services sold in the market.
Easy entry and exit

There are no barriers to entry preventing new firms


entering the market or obstacles in the way of existing
firms leaving the market.
Oligopoly

Oligopoly is a market structure in which a small number


of firms has the large majority of market share. An
oligopoly is similar to a monopoly, except that rather
than one firm, two or more firms dominate the market.
There is no precise upper limit to the number of firms in
an oligopoly, but the number must be low enough that
the actions of one firm significantly impact and influence
the others.
Characteristic of Oligopoly

Few sellers

- the bulk of market supply is in the hands of a relatively few large firms large
who sell to many small buyers. We can therefore say that oligopoly is competition
among the few.
- Basically an oligopoly is a consequence of mutual interdependence, that is, it
is a condition in which an action of one firm may cause a reaction from other firms.
- We can therefore say that the few sellers condition is met when these firms
are so large relative to the total market that they can affect the market price.
Homogenous or differentiated products

in an oligopolistic market, the products offered by


suppliers may be identical or more commonly
differentiated from each other in one or more respects.
Difficult entry
Similar to monopoly, there are formidable barriers of entry
which make it difficult for new firms to enter the market. High
barriers to entry in an oligopoly protect firms from new entrants.
These barriers include exclusive financial requirements, control
over essential resource, patent rights, and other legal barriers.
But the most significant barriers to entry in an oligopoly market is
economies of scale.
Special Types of Market Structure

1. Bilateral monopoly is a market situation comprising one seller and only


one buyer.
2. Bilateral oligopoly is a market condition with a significant degree of
seller concentration and a significant degree of buyer concentration .
3. Duopsony is a market situation in which ther are only two buyers but
many seller.
4. Duopoly is a subset of oligopoly describing a market situation in which
there are only two suppliers.
5. Monopsony is a form of buyer concetration, that is, a market situation
in which a single buyer confronts many small suppliers.

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