2. What are markets?
• In common parlance, by market is meant a place where commodities are
bought and sold at retail or wholesale prices.
• In Economics however, the term “Market” does not refer to a particular
place as such but it refers to a market for a commodity or commodities. It
refers to an arrangement whereby buyers and sellers come in close contact
with each other directly or indirectly to sell and buy goods.
4. What is ‘market structure’
• Market structure is the characteristics of a market.
• We focus on those characteristics which affect the nature of
competition and pricing
6. Alternative Market Structures
• The four market structures
• perfect competition
• monopoly
• monopolistic competition
• oligopoly
7. Type of market
Number of
firms
Freedom of entry
Nature of
product
Examples
Implications for
demand curve
faced by firm
Perfect
Competition
Very many Unrestricted
Homogeneous
(undifferentiated)
Cabbages,
carrots
(approximately)
Horizontal:
firm is a price taker
Monopolistic
Competition
Many / several Unrestricted Differentiated
Builders,
restaurants
Downward sloping,
but relatively elastic
Oligopoly Few Restricted
Undifferentiated
or differentiated
Cement
cars, electrical
appliances
Downward sloping.
Relatively inelastic
(shape depends on
reactions of rivals)
Pure Monopoly One
Restricted or
completely
blocked
Unique
Local water
company, train
operators (over
particular
routes)
Downward sloping:
more inelastic than
oligopoly. Firm has
considerable control
over price
8. Type of market
Number of
firms
Freedom of entry
Nature of
product
Examples
Implications for
demand curve
faced by firm
Perfect
Competition
Very many Unrestricted
Homogeneous
(undifferentiated)
Cabbages,
carrots
(approximately)
Horizontal:
firm is a price taker
Monopolistic
Competition
Many / several Unrestricted Differentiated
Builders,
restaurants
Downward sloping,
but relatively elastic
Oligopoly Few Restricted
Undifferentiated
or differentiated
Cement
cars, electrical
appliances
Downward sloping.
Relatively inelastic
(shape depends on
reactions of rivals)
Pure Monopoly One
Restricted or
completely
blocked
Unique
Local water
company, train
operators (over
particular
routes)
Downward sloping:
more inelastic than
oligopoly. Firm has
considerable control
over price
9. Type of market
Number of
firms
Freedom of entry
Nature of
product
Examples
Implications for
demand curve
faced by firm
Perfect
Competition
Very many Unrestricted
Homogeneous
(undifferentiated)
Cabbages,
carrots
(approximately)
Horizontal:
firm is a price taker
Monopolistic
Competition
Many / several Unrestricted Differentiated
Builders,
restaurants
Downward sloping,
but relatively elastic
Oligopoly Few Restricted
Undifferentiated
or differentiated
Cement
cars, electrical
appliances
Downward sloping.
Relatively inelastic
(shape depends on
reactions of rivals)
Pure Monopoly One
Restricted or
completely
blocked
Unique
Local water
company, train
operators (over
particular
routes)
Downward sloping:
more inelastic than
oligopoly. Firm has
considerable control
over price
10. Type of market
Number of
firms
Freedom of entry
Nature of
product
Examples
Implications for
demand curve
faced by firm
Perfect
Competition
Very many Unrestricted
Homogeneous
(undifferentiated)
Cabbages,
carrots
(approximately)
Horizontal:
firm is a price taker
Monopolistic
Competition
Many / several Unrestricted Differentiated
Builders,
restaurants
Downward sloping,
but relatively elastic
Oligopoly Few Restricted
Undifferentiated
or differentiated
Cement
cars, electrical
appliances
Downward sloping.
Relatively inelastic
(shape depends on
reactions of rivals)
Pure Monopoly One
Restricted or
completely
blocked
Unique
Local water
company, train
operators (over
particular
routes)
Downward sloping:
more inelastic than
oligopoly. Firm has
considerable control
over price
11. Type of market
Number of
firms
Freedom of entry
Nature of
product
Examples
Implications for
demand curve
faced by firm
Perfect
Competition
Very many Unrestricted
Homogeneous
(undifferentiated)
Cabbages,
carrots
(approximately)
Horizontal:
firm is a price taker
Monopolistic
Competition
Many / several Unrestricted Differentiated
Builders,
restaurants
Downward sloping,
but relatively elastic
Oligopoly Few Restricted
Undifferentiated
or differentiated
Cement
cars, electrical
appliances
Downward sloping.
Relatively inelastic
(shape depends on
reactions of rivals)
Pure Monopoly One
Restricted or
completely
blocked
Unique
Local water
company, train
operators (over
particular
routes)
Downward sloping:
more inelastic than
oligopoly. Firm has
considerable control
over price
18. MONOPOLY
• Literally monopoly means one seller.
• ‘Mono’ means one and ‘poly’ means seller.
• One firm is the sole producer or seller of a product which has no close substitutes.
• Thus monopoly is negation of competition.
19. Features of monopoly
• Single producer or seller
• There is no close substitute for the product
• There is no freedom of entry
• The monopolist is a price maker
• The monopolist aims at maximisation of his profit
22. Source and Types of Monopoly
• Control of inputs
• Economies of scale
• Patents
• Legal Restrictions
• Entry Lags
23. Short run & Long run Equilibrium of the
Monopolist
24. PRICE DISCRIMINATION
• Sometimes, a monopoly firm might charge different
prices to different groups of buyers.
• This pricing technique is called price discrimination.
25. Degrees of Price Discrimination
Prof. A C Pigou has distinguished between three forms of price discrimination,
namely;
• First degree price discrimination (different price to each of its customers)
• Second degree price discrimination (discriminate according to quantities consumed)
• Third degree price discrimination (different prices to each sub market)
26. Price
discrimination
of the first
degree
• The monopolist discriminates price not only between different
consumers but also between the different units of purchase by a
given consumer.
• He extracts the maximum possible price for each unit of his
output.
• The monopolist has complete knowledge about the market
demand curve.
• He can charge the maximum price which a consumer is ready to
pay for purchasing a given quantity.
Price
discrimination
of the second
degree
• Price does not differ for each unit of purchase.
• The consumer is made to pay one price upto a certain amount of
purchase and another price for purchases exceeding this amount.
• This is known as the principle of block pricing.
Price
discrimination
of the third
• A particular consumer pays a particular price, irrespective of the
amount of his purchase.
But the price differs between different consumers (or different
27. Monopolistic Competition
• It is that form of market in which there are large numbers of sellers selling
differentiated products which are similar in nature but not homogenous.
• Eg., the different brands of soap - these are closely related goods with a
little difference in odour, size and shape.
• It is a combination of perfect competition and monopoly
33. Meaning
• Oligopoly is a market situation in which there are few firms
producing either differential goods or closely differential goods.
The number of firms is so small that every seller is affected by the
activities of the others.
37. COLLUSIVE OLIGOPOLY
• There exists usually some form of understanding among the
oligopolists in a particular industry.
• This understanding or agreement among the oligopolists may be
either tacit or formal.
38. Collusions are of two main types:
• (i) Cartels and
• (ii)Price leadership.
39. THE KINKED DEMAND THEORY OF
OLIGOPOLY
• It has been observed that many oligopolistic industries exhibit an appreciable degree of price
rigidity or stability.
• That is, in many oligopolistic industries prices remain sticky or inflexible, and there is no
tendency on the part of the oligopolists to change price of the commodity by them even if
the economic conditions undergo a change.
• The most popular explanation is the so-called kinked demand curve hypothesis.
42. Meaning pf duopoly
• It is a specific type of oligopoly where only two producers exist in
one market. In reality, this definition is generally used where only
two firms have dominant control over a market.
43. Monopsony
• Monopsony denotes a market condition when there
is solitary consumer of a product or service.
• Eg: a supermarket which is a sole buyer of fruits
from a regions
44. Bilateral Monopoly
• Bilateral monopoly denotes a market condition in which a solitary
manufacturer of merchandise faces a solitary purchaser of that
commodity
45. Duopsony
• An economic condition, similar to a duopoly, in which there are only two
large buyers for a specific product or service. Members of a duopsony
have great influence over sellers and can effectively lower market prices
for their supplies
Eg: In a local market where there are only two leading
milk companies collecting milk from farmers
46. Oligopsony
• An oligopsony is a market form in which the number of buyers is
small while the number of sellers in theory could be large.
• This typically happens in a market for inputs where numerous
suppliers are competing to sell their product to a small number of
(often large and powerful) buyers.
• It contrasts with an oligopoly, where there are many buyers but few
sellers.