MARKET STRUCTURE

TYPES OF MARKET STRUCTURE

Perfect CompetitionMonopoly

Monopolistic CompetitionOligopoly

Perfectly Competitive Market• Less market

power• Price takers• Goods are

homogenous• Free entry

and exit• Perfect

Information

Monopolistic Competition• Many firms• Free entry

and exit• Differentiat

ed but highly substitutable product

Oligopoly• Small

number of firms

• Product differentiation may or may not exist

• Barriers to entry

Monopoly• There is

market power

• Single seller• One

product (limited or no good substitutes)

• Barriers to entry

TYPES OF MARKET STRUCTURE

Perfectly Competitive Markets

Price Taking1. The individual firms sells a very

small share of the total market output and, therefore, cannot influence market price.

2. The individual consumer buys too small a share of industry output to have any impact on market price.

Perfectly Competitive Markets

• Product Homogeneity1. The products of all firms are

perfect substitutes2. Example– Agricultural products

Perfect Information1. Buyers and sellers have all the pertinent information necessary for them to make decisions on buying or selling goods and services.

Perfectly Competitive Markets

Monopolistic Competition

• Imperfect or 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.

Water Refilling Station

• The 1980s saw proliferation of gadgets and equipment to purify water.

• The purification was done mostly at home.

• Only simple process of passing tap water through a filter.

Monopolistic Competition

• The 1990s added the sophistication of water purification technology with the entrance of bottled water. Raw water passed through 6-8 processes of treatment.

• The sophistication, along with packaging, branding, manufacturing costs, led to drinking water being expensive.

Monopolistic Competition

• Water refilling stations provided a cheaper alternative. More than 3,000 stations are estimated to have been put up in the country presently.

• Initially, customers came to stations with their own containers.

Monopolistic Competition

Water Refilling Station

• Eventually, services extended free delivery of 5-gallon containers with free use of a hot and cold dispenser provided a minimum weekly consumption is met.

• Some stations also sold different types of dispensers and smaller sizes of bottled water.

Monopolistic competition

• There are no barriers to entry. In other words, there is free entry and exit.

• There is product differentiation. The station claims to offer water treatment different from other stations through different technology. Thus, their treated water supposedly are slightly different from their competitors.

• Products are substitutable with one another.

The barriers to entry are:1. Natural– Scale economies– Patents– Technology– Name Recognition

2. Strategic Action– Flooding the market– Controlling an essential input

oligopoly

Examples of oligopolistic structures:

• Supermarkets• Banking industry• Chemicals• Oil• Medicinal drugs• Broadcasting

oligopoly

Mobile Cellular Phone Industry

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Prior to 1995, landline telephone dominated the telecommunication sector. PLDT was considered a monopoly back then.

In 1995, the Telecommunication Act of the Philippines (RA 7925) was enacted, setting the policy for competition and liberalization of the telecommunication sector.

It opened up the paging and the mobile telephone business.

Strategic Actions• Before SUNCELL entered the market, instead

of price being lowered, strategic actions were being exhibited to gain bigger shares of the market

*But still both players offered the same services for the same price.

• The Telecommunication industry (landline) started out as a monopoly.

• As a whole, the mobile cellular phone market is a Oligopolistic market.– Three Major Players– Services are slightly differentiated– There are barriers to entry

oligopoly

• Barriers to entry1. Control of Inputs– firm may own the total supply of a

raw material that is essential in the production of some product.

– DE BEERS / MERALCO

2. Economies of scale– One supplier can produce at a

lower per-unit cost than several smaller firms.

monopoly

3. Patents– Exclusive rights given to inventors

for a limited period of time. – AT&T / BELL COMPANY

4. Licenses/Franchises– Granted by the government as a

condition for operating in the market.

Monopoly

• The monopolist is the supply-side of the market and has complete control over the amount offered for sale.

• Limited by Demand

Monopoly

Philippine Electric Power Industry