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UNIT IVTOPIC:
MARKET STRUCTURE
Presentation by:Apoorv Pandey B.Tech (CSE)
BBDEC,Lucknow
What is a MARKET..?
GENERAL MEANING
“Designated place where buyers and sellers meet for exchange of goods and services.”
Definition by CHAPMAN
“Market refers not necessarily to place but always to commodity and the buyers and seller who are in direct contact with one another.”
TERM USED IN GEOGRAPHICAL SENSE Local Market District Market National Market
FEATURES OF MARKET
COMMODITY
BUYERS AND SELLERS
AREA
CLOSE COMPETITION
CLOSE CONTACT
EXTENT OF MARKET
• Nature of commodity “ Durable commodity have a wide market ”• Size of production “ Huge Quantity is needed for global market
”• Extent of demand “ Universal demanded goods have wider
market ”• Communication and Transport “ Relationship between the seller and buyers
”• Trade policies of Government “ Tax and market related policies ”
Types Of Markets
MARKET STRUCTURE
PERFECT COMPETITION = MANY SELLERS +
IDENTICAL/HOMOGENOUS GOODS
MONOPOLISTIC COMPETITION =MANY SELLERS + SLIGHTLY DIFFERENTIATED PRODUCT
OLIGOPOLY = FEWER SELLERS + SLIGHTLY TO NONE
DIFFERENTIATED PRODUCTS
MONOPOLY = SINGLE SELLER + EXTREMELY DIFFERENTIATED PRODUCT
PERFECT COMPETITION
One extreme of the market structure spectrum Characteristics:
Large number of firms Products are homogenous (identical) – consumer
has no reason to express a preference for any firm Freedom of entry and exit into and out
of the industry Firms are price takers – have no control
over the price they charge for their product Each producer supplies a very small proportion
of total industry output Consumers and producers have perfect knowledge
about the market
PERFECT COMPETITION ADVANTAGES
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
Total Revenue, Average Revenue and Marginal
Revenue• Total revenue ( TR ) is the total amount of money(or some other good) that a firm receives from the sale of its goods. It the firm practices single pricing rather than price discrimination,
TR = total expenditure of the consumer = P X Q
• Average revenue ( AR ) is the total amount of money that a firm receives from the sale divided by the number of units of goods sold.
• AR = TR/Q, since TR=P x Q, then AR = P for single pricing practice
Total Revenue, Average Revenue and Marginal
Revenue
• Marginal revenue ( MR ) is the change in total revenue resulting from selling an extra unit of goods.
• MR = TR/Q, where TR = change in TR due to change in Q, Q = change in Q
Total Revenue, Average Revenue and Marginal
Revenue
IMPERFECT COMPETITION
Characteristics: Large number of firms in the industry May have some element of control over price
due to the fact that they are able to differentiate their product in some way from their rivals – products are therefore close, but not perfect, substitutes
Entry and exit from the industry is relatively easy – few barriers to entry and exit
Consumer and producer knowledge imperfect
EXAMPLES OFIMPERFECT
COMPETITION Examples of oligopolistic structures:
Supermarkets Banking industry Chemicals Oil Medicinal drugs Broadcasting
MONOPOLY
Monopoly power – refers to cases where firms influence the market in some way through their behaviour – determined by the degree of concentration in the industry Influencing prices Influencing output Erecting barriers to entry Pricing strategies to prevent competition May not pursue profit maximisation – encourages
unwanted entrants to the market Sometimes seen as a case of market failure
WHY MONOPOLIES ARISE
•The fundamental cause of monopoly is the existence of barriers to entry.
•Barriers to entry have three sources:▫Ownership of a key resource.▫The government gives a firm the exclusive
right to produce some good.▫Costs of production make one producer
more efficient than a large number of producers.
WHY MONOPOLIES ARISE
ADVANTAGES OF MONOPOLY
May be appropriate if natural monopoly Encourages R&D Encourages innovation Development of some products not likely
without some guarantee of monopoly in production
Economies of scale can be gained – consumer may benefit
DISADVANTAGES OF MONOPOLY
Exploitation of consumer – higher prices Potential for supply to be limited - less choice Potential for inefficiency
QUICK RECAP
We have discussed about: Markets Features of Market Types of markets
Perfect Competition Monopolistic Markets Oligopoly Markets Monopoly
Advantages/Disadvantages of the main types
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