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Chapter8_Econ

The document discusses various market structures, including perfect competition, monopolistic competition, monopoly, oligopoly, and monopsony, highlighting their characteristics and implications for pricing and competition. It explains concepts such as Pareto optimality, price leadership, tacit collusion, and price fixing. Additionally, it notes important developments in market structure, emphasizing the role of smaller firms in innovation and the impact of globalization.

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Nerissa Cabriadas
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2 views

Chapter8_Econ

The document discusses various market structures, including perfect competition, monopolistic competition, monopoly, oligopoly, and monopsony, highlighting their characteristics and implications for pricing and competition. It explains concepts such as Pareto optimality, price leadership, tacit collusion, and price fixing. Additionally, it notes important developments in market structure, emphasizing the role of smaller firms in innovation and the impact of globalization.

Uploaded by

Nerissa Cabriadas
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Chapter

CABRIADAS, NERISSA
CAPUNONG, JILLIAN LEIA
What is Market Structure?

 Market structure is the interconnected characteristics of market,


such as the number and relative strength of buyer and sellers,
degree of freedom in determining the price level and forms of
competition, extent of product differentiation and ease of entry
into the exit from the market.
PERFECT COMPETITION (“PURE”)
Is a market structure where there are many
well-informed sellers and buyers of identical
product and no barriers to entering or leaving the
market.

Things to be
considered
 Number and size of sellers and buyers
 Type of the product
 Conditions of entry and exit
 Transparency of information
The Perfect Competition Demand Curve
Pareto Optimality and Efficiency

States that an economy is Pareto optimal or efficient when no further changes in the
economy can make one individual better off without making someone else worse off. Pareto
optimality is an allocative efficiency which occurs when the value that consumers place on
goods or service or equals the cost of the factor resourced utilized in the production.
MONOPOLISTICS COMPETITION
 Is a type of imperfect competition such that many
producers sell products that are differentiated from
one another (e.g. by branding or quality) and hence
are not perfect substitutes

Things to be considered

 Multiple firms produce similar


product
 Firms face down sloping
demand curve
 Profit maximization occurs
where MC=MR
 In the limit, firms compete
away economic profits
MONOPOLY
Is the opposite extreme of perfect competition.

Greek word “Mono” means one & “Polist” means


seller
Monopolist is the price maker and not a price taker as
there is no close commodity

 Market structure characterized by


 Single Seller/Producer
 Unique product
 Impossible entry into the market
OLIGOPOLY
is a market form in which a market or industry
dominated by a few large producers or sellers of a
homogeneous or differentiated product.
 Few seller: each must consider its rivals’ reaction in response to its
decisions about prices, output, and advertising.
 Standardized or differentiated products.
 Difficult entry: economies of scale, huge capital investment may be
the barriers to enter.
An oligopoly therefore usually exhibits the
following features:
 Product Branding
 Entry Barriers
 Interdependent decision making and
 Non-price competition
 Better quality of service, longer opening hours, extended
warranties, discounts on product upgrades and
contractual relationship with suppliers.
Price

Leadership
Is when one firm has a clear dominant position in the
market and a firms with lower market shares follow the pricing
changes prompted by the dominant firm.
TACIT COLLUSION
 Occurs where firm undertake actions that are likely to minimize a
competitive response, e.g. Avoiding price cutting or not attacking each
other’s market

 Explicit Collusion under oligopoly


 seek to reduce market uncertainty
 Price agreement or cartels.

PRICE FIXING
 Represents an attempt by suppliers to control supply and fix price
at a level close to the level we would expect from monopoly.
Possible break-downs of cartels:
1. Enforcement problems
2. Falling market demand
3. The successful entry of non-cartel firms into the industry.
MONOPSONY
 is a form of buyer concentration, that is, a market
situation in which a single buyer confronts many
small suppliers.
 similar to the concept of monopoly that has one
seller and many buyers.
 Here only one buyer and many sellers
 Products are same
 Price elasticity of demand is according to buyer
 Degree of control over price is to reduce
 Free entry and free exit facility is available
IMPORTANT DEVELOPMENT OF
MARKET STRUCTURE
1. Increasingly most innovation is done by
smaller firms;
2. Innovation is now a continuous process;
3. Innovation is not something left to chance;
4. Demand innovation is becoming more
important and Globalization

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