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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