Market Structure(Types of Competition)

Lesson

• Market Characteristic

• Understand different types of

competition

Markets Some examples

1) Local markets • The market of houses in Oskemen city

2) Regional markets • The market of human resources in the East Kazakhstan

3) National markets • The market of oil in Kazakhstan

4) International markets

• The market of foreign exchange in the world.

Competition and Business - Competition and market

Market Structure

Market structure is established

by the way in which goods and

services are supplied by firms in

a particular market

Market Structure

More competitive

(fewer imperfections)

Perfect Competition

Pure Monopoly

Less competitive

(more imperfections)

Pure Monopoly

Perfect Competition

Market Structure

Market Structure

Monopolistic Competition Oligopoly Monopoly

The further right on the scale, the greater the degree

of monopoly power exercised by the firm.

Pure Monopoly

Perfect Competition

Market Structure

Perfect Competition

(local shops) – retail (sellers)

Imperfect Competition (Monopolistic producers)

Very similar product, (example: Coca cola and Pepsi cola)

Oligopoly (producers) larger companies, eg airlines

Monopoly (producers) one very large company, eg OPEC

4 Types of Market Structure

1. Perfect Competition/Pure

A market structure where there are large number of buyers and sellers selling homogenous (things that are identical in nature) products is called perfect competition.

More Competition Less Competition

Characteristics of perfect competition are:

1. All firms sell an identical product

2. Very large number of buyers and sellers

3. No individual firm has any influence on market price 4. Firms are described as ‘price takers’ – price is set by supply

and demand.

5. All firms have a relatively small market share

6. The industry is characterized by freedom of entry and exit

1. Perfect Competition– local markets (sellers)

For example, in a perfectly competitive market, if a single business decides to increase its selling price of a good, the consumers can just turn to the nearest competitor for a better price, causing any firm that increases its prices to lose market share and profits.

2.Monopolistic Competition(imperfect competition)

It is a type of market structure where there are large number of buyers and sellers, selling similar products. This is close to Perfect Competition because of the large number of competing suppliers.

2.Monopolistic Competition(imperfect competition)

Characteristics of Monopolistic competition are:

1. All firms sell/produce similar product, yet not perfectly substitutable products. Example: Clothing, Shoes.

2. Large number of buyers and sellers

3. Firms are described as ‘price makers’ – price is set by supply and demand.

4. Their products are relatively price elastic because of similar products available.

Monopolistic Competition

Are these shampoos/conditioners different?Pantene $14.50 Frederic Fekkai

$54

Monopolistic Competition

Are these mascaras different?Maybelline Sisley

$4 $43

Examples of Monopolistic (Imperfect competition) would be

Coke and Pepsi

also merchandising firms of all types selling products such as shoes, shirts, TV's,

groceries, Dishwashing Powder, Toothpaste, Soft Drinks

3.Oligopoly(more intense competition than Monopolistic)

Oligopoly is a market situation in which a

particular market is controlled by a small

group of firms and they have intense

competition among them. For example:

telecommunications companies (Tele2, Active, Beeline), (mobile phones), Airlines.

In an oligopoly, there are at least two firms controlling the market.

Characteristics of Oligopoly are:1. Market is dominated (overpowered

or controlled) by a few firms;2. Intense competition;3. There is a lot of price competition; 4. Homogeneous (similar) products.

3.Oligopoly

More Competition Less Competition

Oligopoly

iPod

Zune

Toyota

• Toyota• Scion• Lexus

Chrysler

• Chrysler• Jeep• Dodge

General Motors

• Chevrolet• Buick• Pontiac• GMC• Saturn• Hummer• SAAB• Cadillac

4. Monopoly

Monopoly is a market structure where there is a single company or group owns all or nearly all of the market for a product which has no close substitutes.

By definition, monopoly is characterized by an absence of competition - which often results in high prices and inferior products

Few characteristics of monopoly are:1. Single seller2. No close substitutes3. Price discrimination4. Price maker5. Closed entry

4. Monopoly

One seller dominates the market with no close substitutes

More Competition Less Competition

This is a single firm which controls the entire output of an industry. Very few companies in the world are Monopolies.

1. It is exactly opposite to perfect competition

2. They are usually large multi-national companies like OPEC (Organization of the Petroleum Exporting Countries) but they can exist where a relatively small firm dominates a local market

4. Monopoly

Monopoly

• Natural Monopoly - efficient production by a single supplier

Monopoly

• Geographic Monopoly - small town

Monopoly

1. Technological Monopoly - new invention

– Patent: exclusive right for 17 years

Segway

Monopoly

1. Technological Monopoly - new invention

– Copyright: lifetime + 50 years

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Monopoly

1. Government Monopoly - government owned businesses