Market Structure

Market Structure

Market structure identifies how a market is made up in terms of: The number of firms in the industry

The nature of the product produced

The degree of monopoly power each firm has

The degree to which the firm can influence price

Profit levels

Firms behavior pricing strategies, non-price competition, output levels

The extent of barriers to entry

The impact on efficiency

Market Structure

More competitive (fewer imperfections)

Perfect Competition

Pure Monopoly

Market Structure

Less competitive (greater degree of imperfection)

Perfect Competition

Pure Monopoly

Market StructurePerfect

Competition

Pure Monopoly

Monopolistic Competition Oligopoly Monopoly

The further right on the scale, the greater the degree of monopoly power exercised by the firm.

Market Structure

Importance:

Degree of competition affects the consumer will it benefit the consumer or not?

Impacts on the performance and behavior of the company/companies involved

Market Structure

Characteristics of each model: Number and size of firms that make up

the industry Control over price or output Freedom of entry and exit from the industry Nature of the product degree of similarity of the

products in the industry (extent to which products can be regarded as substitutes for each other)

Market Structure

Characteristics: Look at these everyday products what type of market structure are the producers of these products operating in?

Remember to think about the nature of the product, entry and exit, behavior of the firms, number and size of the firms in the industry.

You might even have to ask what the industry is??Canon SLR CameraBananas

Mercedes CLK Coupe

Vodka

Electric

Guitar Jazz Body

Perfect Competition

One extreme of the market structure spectrum

Characteristics: Large number of firms Products are 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

Monopolistic or 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

Oligopoly

Competition between the few May be a large number of firms in the industry but the

industry is dominated by a small number of very large producers

Concentration Ratio the proportion of total market sales (share) held by the top 3,4,5, etc firms: A 4 firm concentration ratio of 75% means the top 4 firms

account for 75% of all the sales in the industry

Oligopoly

Music sales

The music industry has a 5-firm concentration ratio of 75%. Independents make up 25% of the market but there could be many thousands of firms that make up this independents group. An oligopolistic market structure therefore may have many firms in the industry but it is dominated by a few large sellers.

Market Share of the Music Industry 2010 IFPI: http://www.ifpi.org/site-content/press/20030909.html

Oligopoly

Features of an oligopolistic market structure:

Price may be relatively stable across the industry

Potential for collusion or conspiracy

Behavior of firms affected by what they believe their rivals might do interdependence of firms

Goods could be identical or highly differentiated

Branding and brand loyalty may be a potent source of competitive advantage

Non-price competition may be prevalent

Game theory can be used to explain some behavior

High barriers to entry

Monopoly

Pure monopoly where only one producer exists in the industry

In reality, rarely exists usually some form of substitute available!

Firms may be investigated for examples of monopoly power when market share exceeds 25%

Use term monopoly power with care!

Monopoly

Monopoly power refers to cases where firms influence the market in some way through their behavior determined by the degree of concentration in the industry

Influencing prices

Influencing output

Erecting barriers to entry

Pricing strategies to prevent or stifle competition

May not pursue profit maximization encourages unwanted entrants to the market

Sometimes seen as a cause of market failure

Monopoly

Origins of monopoly:

Through growth of the firm

Through uniting, merger or takeover

Through acquiring patent or license

Monopoly

Summary of characteristics of firms exercising monopoly power: Price could be deemed

too high, may be set to destroy competition (destroyer or predatory pricing), price discrimination possible.

Efficiency could be inefficient due to lack of competition (X-inefficiency) or could be higher due to

availability of high profits

Innovation - could be high because

of the promise of high profits,

Possibly encourages high

investment in research and

development (R&D)

Collusion possible to maintain

monopoly power of key firms

in industry

High levels of branding,

advertising

and non-price competition

TYPE OF MARKET STRUCTURE

Product No. of sellers

No. of buyers

Barriers to entry of exit from the industry

Relative influence over r the price of the product

Pure Competition

Homogenous Many Many None Little or no influence;price takers

Monopoly Unique One Many Very high Absolute influence; seller is price maker

Monopolistic Competition

Slightlydifferentiated

Many Many Low Strong influence; but usually a price taker

Oligopoly Slightly differentiated

Few Many Very high Very strong influence; usually a price maker with the others

Monopsony Usually unique

Few One Very high Absolute influence; buyer is price maker

Oligopsony Slightly differentiated

Few to many Few Very high Very strong influence-buyer; usually a price maker with the others

end

RA 7394 :The Consumers Act of the Philippines is the policy of the state to protect the interest of the consumer, promote his general welfare

and to establish standards of conduct for business industry.

1. The right to basic needs, which guarantee survival, adequate food, clothing, shelter, health care. Education and sanitation to health and life.

2. The right to safety, which is the right to be protected against the marketing of goods or the provision of services that are hazardous to health and life.

3. The right to information, which is the right to be protected against dishonest misleading advertising or labelling and the right to be given the facts and information needed to make an informed choice.

4. The right to choose, which is the right to choose products at competitive prices with an assurance of satisfactory quality

5. The right to representation, which is the right to express consumers interests in making and execution of government price policies.

6. The right to redress, which is the right to be compensated for misrepresentation, shoddy goods or unsatisfactory services.

7. The right to consumer education, which is the right to acquire the knowledge and skills necessary to be an informed customer.

8. The right to a healthy environment, which is the right to live and work in an environment that is neither threatening nor dangerous and, permits a life of dignity and well-being.

Authentic CHANEL 2.55 Double Flap Chain

Shoulder Bag - Complete Set - SOLD

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Item# Authentic-CHANEL-255-Double-Flap-

Chain-Shoulder-Bag--Complete-256

PhP61,888.88

This item is SOLD!

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Product Description

Guaranteed Authentic CHANEL 2.55 Double

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Shows minimal signs of usage. Lambskin leather

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