MARKET STRUCTURE

Prepared by: Arnel O. Rivera

MAT-SS

What is the market structure?

• The state of a market with respect to competition.

What are the main criteria used to distinguish the different market structure?

• Number and size of producers and consumers

• Types of goods and services being sold.

• Availability of information about the products being sold.

TYPES OF MARKET STRUCTURES

• Perfect competition

• Oligopoly (Monopolistic competition)

• Monopoly

• Monopsony

PERFECT COMPETITION

• A market in which there are many small firms, all producing the same goods.

• No single firm has influence on the price of the product it sells.

VS

PERFECT COMPETITION

Advantages Disadvantages• Helps allocate resources to

most efficient use• Encourages efficiency• Consumers benefit:

consumers charged a lower price

• Responsive to consumer wishes

• The conditions are very strict, there are few perfectly competitive markets

• Insufficient profits for investment

• Lack of product variety• Unequal distribution of

goods & income

MONOPOLY

• A market in which there are many buyers but only one seller

• A single firm selling all output in a market

MONOPOLY

Advantages Disadvantages

• Encourages R&D• Encourages innovation• Economies of scale

can be gained

• Exploitation of consumer – higher prices

• Potential for supply to be limited - less choice

• Potential for inefficiency

OLIGOPOLIES, CARTELS AND MONOPOLISTIC COMPETITIONS

• Oligopoly - there are few sellers and many unidentified buyers.

• Monopolistic competition – there are a few sellers supplying the market with different types of brands of the same product and capturing a specific group of buyers for a particular brand.

• Cartels – sellers agree to coordinate prices and production.

EXAMPLES:

EXAMPLES:

OLIGOPOLIES, CARTELS AND MONOPOLISTIC COMPETITIONS

Advantages Disadvantages

• Products differentiated• Firm has some control

over price• Products could be

highly differentiated • Non–price competition• Price stability within

the market

• High barriers to entry• Potential for conspiracy• Abnormal profits• High degree of

interdependence between firms

MONOPSONY

• Single buyer faces many sellers• A form of imperfect competition• Sells products with higher price• Buys material with lower price

MONOPSONY

Advantages Disadvantages

• Lower cost• Dictate exact

specifications to suppliers

• Don’t have risks

• Abnormal profits• Unequal distribution of

goods & income

SUMMARY

Market Structure

Seller Entry Barriers

Seller Number

Buyer Entry Barriers

Buyer Number

Perfect Competition

No Many No Many

Monopolistic competition

No Many No Many

Oligopoly Yes Few No Many

Monopoly Yes One No Many

Monopsony No Many Yes One

CONCLUSION:

• Market structure can be described with reference to different characteristics of a market, including its size and value, the number of providers and their market share, consumer and business purchasing behavior, and growth forecasts

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