Market structure

MARKET STRUCTURE

By MLJT

2 types: Perfect Competition Imperfect Competition

- number of buyers & sellers - the ability of individual buyers &

sellers to affect prices

- the freedom of firms to enter and leave the industry

- whether the products being sold by different firms are identical/ somewhat different

occurs in an industry when there are MANY SMALL PRODUCERS who are selling IDENTICAL PRODUCT, with EASY ENTRY. It results in lower prices and greater quantity

Perfect Competition

Perfect Competition

Many Buyers Many Sellers Homogeneous

Products Freedom of Entry

& Exit Perfect

Information

Characteristics: Examples:

Exists when individual sellers exercise an amount of control over the price of their output. (it does not necessarily mean that control is absolute because a firm does not have complete discretion over the price at which it sells the good.) Refers to any form of market structure other than perfect competition and would thus include MONOPOLY, MONOPOLISTIC COMPETITION, OLIGOPOLY and MONOPSONY.

IMPERFECT COMPETITION

MONOPOLY

Example:

Only ONE (1) seller of a good/ service

(note: because seller is large

relative to the market, the action of the seller affects the market price.)

Barriers to Entry- Factors that prevent the entry of new firms to the market.

BARRIERS TO ENTRY: Legal Restrictions

Patents Exclusive

Ownership of a Key Resource or Input

The Need for a Large Investment

Gov’t gives a license to only a single company provider

Gov’t gives exclusive right to produce the products

The need for a large investment discourages entry into the market

Explanation:

OLIGOPOLY Few sellers ( note: because Each seller is large relative to the

market, the action of one seller affects the market price.)

Price is determined by the actions taken by all sellers.

ex. Mobile communication CARTEL- A group of sellers of a product

who have joined together and coordinate their actions

MONOPOLISTIC COMPETITION

Many firms sell products that are relatively close substitutes that are not completely homogenous

Basically perfect competition plus product differentiation

Products are differentiated by quality, packaging & supplementary services offered

Many sellers Firms sell products

that are similar but not identical

Firms are free to enter & exit the industry

Perfect information

Characteristics:

MONOPSONY A monopsony ( mono (one) +

Greek opsonein (buy provisions) is a market situation in which there is only ONE BUYER.

Ex. Tobacco grower

Young Economists

FOR LISTENING……