market structure

1. MARKET STRUCTUR
CONTENTS
1.Intro to market structure
2.Factors to be considered in classifying market
struture
3.Types of market structure and their
characteristics
i.Perfect competition
ii.Monopoly market
iii.Monopolistic competition market
iv.Oligopoly market
4.Comparison among the markets

2. Introduction
Market structure is the institutional arrangment
which shows the behaviour relationship
between buyers and sellers.
It is a conduct and structure at the market.

3. FACTORS TOBE CONSIDEREDIN CLASSIFYING MARKET STRUCTURE
1.Numberof buyers and sellers, How many buyers and sellers are on the market?.
for example monopoy has one seller
2.Degree of product differentiation. Determine if the products are similar to each
other or if a product is unique.
3.Nature of entry and exit.
Are there any barriers to entry? an entry barrier can be high startup costs, For
example the startup cost of settting an aircraft factory that requires high investement
funds is one of teh barrier that there are few aircraft producers
On exit it refers to how easy it is to get out of the investment.For example if the firm
has many machine that cannot be converted to use in production of other
products,then geting out of the market wont be easy, some companies may opt not to
enter because of the risk.
4.Goverment intervation
Does the goverment interfere in the market? Has the goverment set any barrier in
form of regulation?. For example a goverment might choose to restrict number of
firms to produce a particular product or service.
5.Degree of competition.

4. TYPES OF MARKET
STRUCTURES AND THEIR
CHARACTERISTICS
 There are four main types of market structure
i.Perfect market competition
ii.Monopoly market
iii.Monopolistic market
iv.Oligopoly market.

5. Perfect competitive market
 It is the market where there is a large number
of buyers and sellers selling homogenous
product (i.e same nature of product are
sold!!).
For example maize, flour

6. FEATURES/CHARACTERISTICS OF PERFECT COMPETITIVE MARKET
The market is characterized by the following six main features.
1.Large numberof buyers and sellers.
There are many large companies offering the product, hence forcing companies to
offer the products at market price, if the company sells products at high price, it
wont sell the products it manufactures.Also many buyers are available to buy the
product due to its needs. For example Flour and sugar
2.Product sold is homogenous
The product offered is not unique, it is identical to other products offered by sellers.
consumers can susbtistute from one seller to another.
3.Both buyers and sellers are price takers
The sellers are price takers since they have to go along with the market price, if
they increase their price, they will loose their customers as customers can shift to
other substitute sellers.
The customers also have to accept the price as there will be no product at a price
below market price
4.There is free entry and exit
There is easy of entry and exit due to a way that resources used can be used in
multiple activties in a market, because of this firms can enter and go out easly.
5.The consumers/buyers have the perfect information about the product
The consumers know everything about the product resulting to low or no
advertisement needed. For example in most countries, buyers have perfect
information about sugar or milk.

7. Monopoly market
 It is a market structure which has a single supplier
or firm with no substitute.
There is only one firm producing a prooduct or
service, there are no substitutes.hence
consumers have no choice but only to buy a
product or service at one place.
The firm has the power to set price and entry by
other firms is not possible.
For example, In most contries there is only one
electrical company which is regulated by the
goverment.

8. FEATURES OF MONOPOLY MARKET
1.There is a single supplier
Due to the presence of single supplier, consumers have no choice but only to buy
the product or service at one place
2.Products have no close substitutes
Due to single producer, there is no close substitutes. Hence the consumers have
to buy the product from single supplier.There are no other companies/producers
that offer the same products.
3.The monopolistic has the powerto set the price
Since the products have no substitutes, the firm has the power to set price that it
sees fit for it to gain profit. The firm is the price maker
4.There are entry barriers.
Barriers for other firms to enter can be many such as startup cost barriers and
goverment intervention in the market etc
5.There is goverment intervention

9.  Examples of Monopoly
 Electricity utilities,
 Gas
 Water
 Public Tramsport
 Telecommunications

10. 10
Monopoly graph

11. Monopolistic competition
market
 It is the market where by there are many
buyers and sellers selling different products
that are differentiated interms of colour, size,
quality and packaging.

12. FEATURES/CHARACTERISTICS OF MONOPOLISTIC COMPETITION
MARKET
1.Large numberof buyers and sellers
2.Easy of entry because of relative low costs and easy of exit
3.Products are differentiated interms of colour, quality, size and packaging
For example restaurants offer the same product which is food, but they differ in
taste as each restaurant has its own way of cooking , which results to food that
is completely different from others.
4.The firmis a price maker
The company or seller has the power to set its own price, if the product is of
high quality and more better than other competitors, a firm can set price higher
than its competitors

13. Q
Short-run Monopoly Equilibrium
Monopolistically competitive firms take
full advantage of short-run monopoly.
Competition, market structures and business decisionsCompetition, market structures and business decisions
Market structuresMarket structures Мonopolistic competition
Price
Costs
Quantity
MR Demand
MC
AC
Qmc
Pmc

14. OLIGOPOLY MARKET
It is a market structure where there are few
sellers selling differentiated products, it is
dominated by few giant companies.
For example; automobile manufacture or
cellphone manaufacture: they offer different
cellphones with different shapes,specification
and design. Example HTC and SAMSUNG

15. FEATURES OF OLIGOPOLY MARKET
1.There are few sellers
2.The market is dominated by giant company
3.There is high level of competition
4.There is a barrier to entry.i.e the cost of starting is high
5.The firms are interdependent. Each firm is affected what others do
6.There is higher level of collusion
COLLUSION: It is the formal agreement among oligopolist on price setting and
market share. In simple collusion means agreement between people to act together
secretely or legally in order to achieve a certain goal

17. BASIS OF
DIFFERENCE
Perfect
competition
Monopoly
market
Monopolistic
competition
Oligopoly
1.NUMBER OF
SELLERS
Very large
number of
sellers
Single seller Large number
of sellers
Few big sellers
2.NATURE OF
PRODUCT
Homogenous
products
No substitute
products( produ
ct is unique)
Closely related
but
differentiated
products
Products are
homogenous
under pure
oligopoly and
differentiated
under
differentiated
oligopoly
3.DEGREE OF
PRICE
CONTROL
A firm is a price
taker, no control
over the price
A firm is a price
maker. Has
control over
price
A firm has
partial control
over the price.
An individual
firm is able to
influence the
price by
creating a
unique product
It follow the
policy of price
rigidity to avoid
price wars

18. BASIS OF
DIFFERENCE
Perfect
competition
Monopoly
market
Monopolistic
competition
Oligopoly
4.BARRIERS
TO ENTRY
AND EXIT
Freedom of
entry and exit
Entry of new
firm is restricted
and exit of old
firm is restricted
Freedom of
entry and exit
Restriction on
entry of new
firms
5.LEVEL OF
KNOWLEDGE
OF MARKET
Perfect
knowledge
about market
conditions
Imperfect
knowledge
about market
conditions
Imperfect
knowledge
about market
conditions
Imperfect
knowledge
about market
conditions
6.COMPETITIO
N
Highly intensive No competition High
competition
High
competition
7.GOVERMEN
T
INTERVENTIO
N
No goverment
intervention
Goverment
intervention is
present
No goverment
intervention
There is less
goverment
intervention

19. Marketsslide 19
PRICE DETERMINATIO N
INMARKETS
 The market demand curve shows the amount
demanded at every price.
 The market supply curve shows the amount
supplied at every price.
 The question now is whether there is some
price at which the quantities supplied and
demanded are the same.

20. Marketsslide 20
EQUILIBRIUM PRICE
DEFINED The equilibrium price of a good is:
 a price at which quantity supplied equals quantity
demanded.
 a price at which excess demand equals zero.
At the equilibrium price there is no net tendency for
price to change.

21. Marketsslide 21
 Exce ss de m and exists when, at the current
price, the quantity demanded is greater than
quantity supplied.
 Exce ss supply exists when, at the current
price, the quantity supplied is greater than the
quantity demanded.

22. Marketsslide 22
Excess supply = Qs - QD
Market for tacos
supply
demand
price
quantity
p = $3
QD QS
EXCESS SUPPLYEXCESS SUPPLY

23. Marketsslide 23
Excess demand = QD - QS
Market for tacos
supply
demand
price
quantity
p = $1
QDQS
EXCESS DEMANDEXCESS DEMAND

24. Marketsslide 24
 When there is EXCESS DEMAND for a good,
price will tend to rise.
 When there is EXCESS SUPPLY of a good,
price will tend to fall.

25. Marketsslide 25
 When excess demand equals zero, price must
be the equilibrium price, and we say the
market is in equilibrium.
If you want to find out the price at which a market is in
equilibrium, then look for the price where the excess demand
is zero.

26. Marketsslide 26
 Economists are interested in the explaining
equilibrium prices.
 In particular, they are anxious to explain why
equilibrium prices change.