APPLIED ECONOMICS

Market Structures

ABM_AE12
APPLIED ECONOMICS
MARKET STRUCTURES

Objectives
At the end of the lesson, the learner is expected
to:
 explain market structures (perfect competition,
monopoly, oligopoly, and monopolistic
competition)
 discuss the appropriate market structures in
the common business in the Philippines

ABM_AE12
APPLIED ECONOMICS
MARKET STRUCTURES

Market Structure
• The market structure is best defined as the
organisational and other characteristics of a
market.

ABM_AE12
APPLIED ECONOMICS
MARKET STRUCTURES

Market Structure
• Type of market structure influences how a
firm behaves:
 Pricing
 Supply
 Barriers to Entry
 Efficiency
 Competition

ABM_AE12
APPLIED ECONOMICS
MARKET STRUCTURES

Market Structure
• Determinants of market structure
– Freedom of entry and exit
– Nature of the product – homogenous (identical),
differentiated?
– Control over supply/output
– Control over price
– Barriers to entry

ABM_AE12
APPLIED ECONOMICS
MARKET STRUCTURES

Types of Market Structure

1. Monopolistic competition, a type of
imperfect competition such that many
producers sell products or services that are
differentiated from one another (e.g. by
branding or quality) and hence are not
perfect substitutes

ABM_AE12
APPLIED ECONOMICS
MARKET STRUCTURES

Types of Market Structure

1. Monopolistic Competition
– Many buyers and sellers
– Products differentiated
– Relatively free entry and exit
– Each firm may have a tiny ‘monopoly’ because of the
differentiation of their product
– Firm has some control over price
– Examples – restaurants, professions – solicitors, etc.,
building firms – plasterers, plumbers, etc.

ABM_AE12
APPLIED ECONOMICS
MARKET STRUCTURES

Types of Market Structure

2. Oligopoly, in which a market is run by a
small number of firms that together control the
majority of the market share.
• Duopoly, a special case of an oligopoly with
two firms.

ABM_AE12
APPLIED ECONOMICS
MARKET STRUCTURES

Types of Market Structure

3. Monopsony, when there is only a single buyer in a
market.
4. Oligopsony, a market where many sellers can be
present but meet only a few buyers.
5. Monopoly, where there is only one provider of a
product or service.
• Natural monopoly, a monopoly in which
economies of scale cause efficiency to increase
continuously with the size of the firm.

ABM_AE12
APPLIED ECONOMICS
MARKET STRUCTURES

Types of Market Structure

6. Perfect competition, a theoretical market
structure that features no barriers to entry, an
unlimited number of producers and consumers,
and a perfectly elastic demand curve.

ABM_AE12
APPLIED ECONOMICS
MARKET STRUCTURES

Types of Market Structure

Perfect Competition:
• Free entry and exit to industry
• Homogenous product – identical so no consumer
preference
• Large number of buyers and sellers – no individual
seller can influence price
• Sellers are price takers – have to accept the market
price
• Perfect information available to buyers and sellers

ABM_AE12
APPLIED ECONOMICS
MARKET STRUCTURES

Types of Market Structure

Advantages of Perfect Competition:
 High degree of competition helps allocate
resources to most efficient use
 Price = marginal costs
 Normal profit made in the long run
 Firms operate at maximum efficiency
 Consumers benefit

ABM_AE12
APPLIED ECONOMICS
MARKET STRUCTURES

Quick Reference to Basic Market Structures

Market Seller Entry Seller Buyer Entry Buyer
Structure Barriers Number Barriers Number
Perfect
Competition No Many No Many
Monopolistic
competition No Many No Many
Oligopoly Yes Few No Many
Oligopsony No Many Yes Few
Monopoly Yes One No Many

ABM_AE12
APPLIED ECONOMICS
MARKET STRUCTURES

Activity:
Collate information about a company in the
Philippines. Based on its market power
determine which market structure it can be
categorized?

ABM_AE12
APPLIED ECONOMICS
MARKET STRUCTURES

Quiz: Complete the table below:

Quiz
Market Structure
Disadvantage Advantage
Perfect
Competition
Monopolistic
competition
Oligopoly
Oligopsony
Monopoly

ABM_AE12
APPLIED ECONOMICS
MARKET STRUCTURES

Reference:
• Tullao Jr., Tereso S. Applied Economics For A
Progressive Philippines. Phoenix Publishing House;
927 Quezon Ave., Quezon City. 2016
• Pagoso, Cristobal M. Philippine Economics (Macro
Approach). NELSON PUBLICATION; Marimar
Village Paranaque City. 2003
• Carnaje, Gideon P. Applied Economics. Vibal Group
Inc, Araneta Avenue, Quezon City. 2016

ABM_AE12