Market Structure

(2) Types of Market Structures:

1. Perfect Market is a market
situation which consist of a
very large numbers of buyers
and sellers offering a
homogenous product.
2. Imperfect Market is market
situation wherein there are few
sellers which are enough to
affect the market price.

CHARACTERISTIC OF MONOPOLY
1. There is only one firm selling
the commodity
2. There are no close substitutes
for the commodity
3. The monopolist decides on the
price.
4. Entry to the industry is very
difficult or impossible
5. There may be or no non-price
competition like advertising,
sales, promotion, etc.
MONOPOLISTIC COMPETITION

MONOPOLY

Exists when a single firm is the

sole producer of a product or a
service for which there are no
close substitutes.
Characterized by only one
producer in the industry; there
is lack of economic competition
and viable substitute for goods
and services that they provide
Closed substitutes there is
no other firms producing the
same product or products
varying only in minor ways
from that of the monopolist(a
price maker; can influence and
has considerable control over
the price)
Fairly common in steel,
aluminum, tobacco; occurs
most commonly in regulated
public utilities and in particular
geographical areas where
transport cost allows a local
seller to act as a monopolist
within a certain range of
prices.
Refers to the form of market
organization in which there is a
single firm producing a
commodity or a service for
which there are no close
substitutes.

Characterized by the presence

of a big number of sellers
selling goods that are similar
but are different in others, in
technical language it means
the product of the different
sellers are similar but not
identical. This is known as
Product differentiation
PRODUCT DIFFERENTIATION is
crucial to monopolistic
competition; some buyers may
prefer a certain brand of a
given commodity, such that
they would not consider a
similar product, under another
brand, as a perfect substitute
of the former
What makes a good or service
different from another? We
need only the buyer to believe
theres a difference, because
product differentiation takes
place only in the buyers mind.
There is a competition because
many sellers offer products
that are close, but not perfect,
substitutes for each other.
No firm has any significant
influence over price.
Examples of Monopolistic
Competition: personal care

products, cars, apparel,

furniture, medicine, and the
like.
Refers to the market
organization in which a
relatively large number of
small producers or suppliers
are offering similar but not
identical products.
CHARACTERISTIC OF MONOPOLISTIC
COMPETITION
1. There is relatively large
number of sellers.
2. The product of each seller is
differentiated from that of all
other sellers.
3. There is very limited amount of
control over market price
4. There is a relatively easy entry
into and exit from the market
5. There is a non - price
competition like advertising
product quality, promotion,
location of the store, etc..,
PURE COMPETITION
Also termed PRICE TAKER
MARKETS
Is a market structure where
there is a large number of
independent firms selling
homogenous or identical
products.
Sellers have ease of venturing
or going out because freedom
prevails.
Markets characterized by a
large number of small firms
producing identical products in
industry with complete
freedom or entry/exit.
CHARACTERISTIC of PURE
COMPETITION
1. There is a numerous number of
independent sellers of a
commodity.
2. All firms in the industry sell
one or the same products.

3. Each individual buyer or seller

is a price dependent.
4. There is a freedom of entry and
exit of firms in and out of the
industry. There are no barriers
like legal, financial, and
technical requirements.
5. There is no competition as to
advertising, sales promotion,
etc.
OLIGOPOLY
A market structure
characterized by a small
number of firms and a great
deal of interdependence among
them; formulates his policies in
relation to what his rivals
might make; any change in the
firms marketing or price
strategy would influence the
sales and profits of
competitors.
Market situation in each are
aware of the action of the
others; all decisions depend on
how the firms behave in
relation to each other;
Conjectural Interdependence
the decision of one firm
influences and are influenced
by the decisions of other, firms
in the market.
CHARACTERISTIC OF OLIGOPPLY
1. There are only few sellers.
2. There is a mutual
interdependent among few
sellers.
3. There is a rigid price; there is a
uniform pricing of the product.
4. Products sold may be
homogenous or differentiated.
5. There may be a price leader.
6. There are some barriers to
entry into the market. (e.g.
economies of scale, franchise

and parents, or ownership of

an important resource.
7. There is a non price
competition. Manifested
through product promotion.
TYPES OF OLIGOPOLY
1. Pure Oligopoly
Few sellers that produce
identical products.
Common in a market
situation where the
products sold are fairly
homogenous.
Ex. Cement, sugar, and
other raw materials.
2. Differentiated Oligopoly
Few sellers of
differentiated products
Value characteristics or
qualities of goods vary.
Ex. Telecommunications,
airline, shipping
industries (they have
numerous services of
fered to the public)
3. Duopoly
Give rise to a situation
where only two producers
exists in a given market.
Seen in television and
radio industries in which
both operate in the same
locality although
technically, they are one
company.
CARTEL
Refers to a market situation in
which firms agree to cooperate
with one another to behave as
if they were a single firm and
eliminate competitive behavior

among them; these firms agree

among themselves to restrict
their total output to the level
that maximizes their joint
profit. (Ex. Organization of
Petroleum Exporting Countries
OPEC)
Is a formal agreement among
oligopolists to set up a
monopoly price, allocate,
output, and share profit among
members.
Essentially acts like a
monopolist in the market,
setting a higher price and
lower output to generate
positive economic profits.

COLLUSION
A formal or informal agreement
among oligopolists to adopt
policies that will restrict or
reduce the level of competition
in the market.
Usually happens in the bidding
process for road development
work in several regions of the
country.
ECONOMIES OF SCALE
Justify bigness because only a
firm with a large output can
produce near the minimum
point.
When the firms output is so
large that it is almost equal to
the output of the entire
industry, this state of
monopoly is justified by calling
it EFFICIENT