Market Structure (N3)


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Market Structure (N3)

  1. 1. GROUP MEMBER Võ Thị Thanh Phương Hồ Xuân Thảo Nguyên Trần Thục Văn Võ Hoàng Ngọc Uyên Phan Huỳnh Mỹ Tiên
  2. 2. UNIT 18 <ul><li>MARKET STRUCTURES AND COMPETITION </li></ul>
  3. 3. MARKET STRUCTURE <ul><li>What is the market structure? </li></ul><ul><li>The state of a market with respect to competition </li></ul><ul><li>Why does the market need the competition? </li></ul>
  4. 4. MARKET STRUCTURE <ul><li>What are the main criteria which are used to distinguish the different market structure? </li></ul><ul><ul><ul><ul><ul><li>The number and size of producers and consumers </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>The type of goods and services </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>The information </li></ul></ul></ul></ul></ul>
  5. 5. MARKET STRUCTURES <ul><ul><ul><ul><li>Market structures are including: </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Perfect competition </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Monopolistic competition </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Oligopoly </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Monopoly </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Oligopsony </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Monopsony </li></ul></ul></ul></ul></ul>
  6. 6. PERFECT COMPETITION <ul><ul><ul><ul><li>Definition of Perfect competition: </li></ul></ul></ul></ul><ul><li>A market in which there are many small firms, all producing homogeneous goods. </li></ul><ul><li>No single firm has influence on the price of the product it sells. </li></ul>
  7. 7. PERFECT COMPETITION <ul><li>Feature of Perfect competition </li></ul><ul><ul><li>Many buyers / Many sellers </li></ul></ul><ul><ul><li>Homogeneous Products </li></ul></ul><ul><ul><li>Low-entry / exit barriers </li></ul></ul><ul><ul><li>Perfect information – For both consumers and producers </li></ul></ul><ul><ul><li>Firms aim to maximize </li></ul></ul>
  8. 8. PERFECT COMPETITION <ul><ul><ul><ul><li>Advantages of perfect competition: </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>High degree of competition helps allocate resources to most efficient use </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Price = marginal costs </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Competition encourages efficiency </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Firms operate at maximum efficiency </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Consumers benefit: consumers charged a lower price </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Responsive to consumer wishes: Change in demand, leads extra supply </li></ul></ul></ul></ul></ul>
  9. 9. PERFECT COMPETITION <ul><ul><ul><ul><li>Disadvantage of perfect competition: </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>The conditions for perfect competition are very strict, there are few perfectly competitive markets </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Insufficient profits for investment </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Lack of product variety </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Lack of competition over product design and specification </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Unequal distribution of goods & income </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Externalities e.g. Pollution </li></ul></ul></ul></ul></ul>
  10. 10. MONOPOLISTIC COMPETITION <ul><li>What is Monopolistic Competition? </li></ul><ul><li>Monopolistic Competition, also called competitive market, where there are a large number of independent firms which have a very small proportion of the market share </li></ul>
  11. 11. MONOPOLISTIC COMPETITION <ul><li>Characteristics of Monopolistic Competition </li></ul><ul><li>There are many buyers and sellers. </li></ul><ul><li>Products differentiated. </li></ul>
  12. 12. MONOPOLISTIC COMPETITION <ul><li>There are few barriers to entry and exit. </li></ul><ul><li>Each firms may have a tiny “monopoly”. </li></ul><ul><li>Firm has some control over price. </li></ul>
  13. 13. MONOPOLISTIC COMPETITION <ul><li>Monopolistic Competition Examples: books, restaurants, grocery stores, shoes, clothing, coffee, chocolate… </li></ul>
  19. 19. MONOPOLISTIC COMPETITION <ul><li>Monopolistic Competition and Perfect Competition. </li></ul><ul><li>Monopolistic competitive firms produce products that are not perfect substitutes or are at least perceived to be different to all other brands products. </li></ul><ul><li>Unlike in perfect competition, the monopolistic competitive firm does not produce at the lowest possible average total cost </li></ul><ul><li>Perfect competition is an economic model that describes a hypothetical market form in which no producer or consumer has the market power to influence prices. While monopolistic competition is inefficient, perfect competition is the most efficient, with supply meeting demand and production therefore matching this, so stock is not sat in storage for prolonged periods or going to waste </li></ul>
  20. 20. MONOPOLY <ul><li>Definition ( economics) </li></ul><ul><li>a market in which there are many buyers but only one seller </li></ul>
  21. 21. MONOPOLY’S CHARACTERISTICS <ul><li>A single firm selling all output in a market : it is a direct contrast to perfect competition. </li></ul><ul><li>Unique product: </li></ul><ul><li>  Barriers to Entry and Exit. </li></ul><ul><ul><li>Government license or franchise </li></ul></ul><ul><ul><li>Resource ownership </li></ul></ul><ul><ul><li>Patent and copyrights </li></ul></ul><ul><ul><li>High start- up cost </li></ul></ul><ul><ul><li>Decreasing average total cost </li></ul></ul><ul><li>  Specialized information </li></ul>
  22. 22. ADVANTAGES OF MONOPOLY <ul><li>Import the products and compete with foreign companies </li></ul><ul><li>Complete freedom in selecting prices or quantity </li></ul><ul><li>No guarantee of profitability........ there is only one firm </li></ul>
  23. 23. DISADVANTAGES OF MONOPOLY <ul><li>The prices charged even increase prices </li></ul><ul><li>Reduce the quality of the products </li></ul><ul><li>Reduce the satisfaction of the customers </li></ul><ul><li>Cause many disadvantages for the employees of the company </li></ul>
  24. 24. Monopoly
  25. 25. OLIGOPOLY <ul><li>A market/industry dominated by a small number of sellers (oligopolists) </li></ul><ul><li>Decisions of one firm  --influence--  decisions of other firms </li></ul>
  26. 26. CARTEL <ul><li>A formal(explicit) agreement among firms </li></ul><ul><li>A formal organization of producers who agree to coordinate prices and production. </li></ul>
  27. 27. CARTEL MEMBERS AGREE ON <ul><li>Price fixing </li></ul><ul><li>Total industry output </li></ul><ul><li>Market shares </li></ul><ul><li>Allocation of customers </li></ul><ul><li>Allocation of territories </li></ul><ul><li>Bid rigging </li></ul><ul><li>Division of profits </li></ul>
  28. 28. Increase individual member’s profit by reducing competition Firm B normal advertising Firm B aggressive advertising Firm A normal advertising earns $50 profit A: $0 profit Firm B: $80 profit Firm A aggressive advertising A: $80 profit Firm B: $0 profit earns $15 profit
  29. 29. 6 movie studios receive 90% of American film revenues U.S./Canada market share(2008) 18.4% 13.2% 12.4% 16.4% 12.7% 10.5%
  30. 30. 4 major music companies receive 80% of recording revenues
  31. 31. Television industry 1950s  1970s Today
  32. 32. 3 leading food processing companies
  33. 33. In Vietnam
  34. 34. OLIGOPSONY <ul><li>Few buyers & many sellers </li></ul><ul><li>A form of imperfect competition </li></ul>
  35. 35. OLIGOPSONY <ul><li>Ex: cocoa </li></ul><ul><li>Ex: tobacco </li></ul>
  36. 36. MONOPSONY <ul><li>Single buyer faces many sellers </li></ul><ul><li>A form of imperfect competition </li></ul><ul><li>Monopolist becomes monopsonist </li></ul><ul><ul><li>Sells products with higher price </li></ul></ul><ul><ul><li>Buys material with lower price </li></ul></ul>
  37. 37. OLIGOPSONY & MONOPSONY <ul><li>Play off one supplier against another => lower cost </li></ul><ul><li>Dictate exact specifications to suppliers </li></ul><ul><li>Don’t have risks </li></ul>
  38. 38. CONCLUSION <ul><li>Market structure can be described with reference to different characteristics of a market, including its size and value, the number of providers and their market share, consumer and business purchasing behavior, and growth forecasts </li></ul>
  39. 39. CONCLUSION Market Structure Seller Entry Barriers Seller Number Buyer Entry Barriers Buyer Number Perfect Competition No Many No Many Monopolistic competition No Many No Many Oligopoly Yes Few No Many Oligopsony No Many Yes Few Monopoly Yes One No Many Monopsony No Many Yes One
  40. 40. ANSWER KEY <ul><li>1b </li></ul><ul><ul><li>Market leaders </li></ul></ul><ul><ul><li>How to keep the market leaders position </li></ul></ul><ul><ul><li>Market challengers </li></ul></ul><ul><ul><li>Market followers </li></ul></ul><ul><ul><li>Disadvantages of vulnerable market followers </li></ul></ul>
  41. 41. ANSWER KEY <ul><li>1c </li></ul><ul><ul><li>2 nd summary: most accurately summarizes the text </li></ul></ul><ul><ul><li>3 rd summary: wrong </li></ul></ul>
  42. 42. ANSWER KEY <ul><li>1d </li></ul><ul><ul><li>share </li></ul></ul><ul><ul><li>promotion </li></ul></ul><ul><ul><li>monopoly </li></ul></ul><ul><ul><li>entire market </li></ul></ul><ul><ul><li>unique selling proposition </li></ul></ul><ul><ul><li>segmentation </li></ul></ul><ul><ul><li>niche </li></ul></ul><ul><ul><li>competency </li></ul></ul><ul><ul><li>turnover </li></ul></ul><ul><ul><li>recession </li></ul></ul>
  43. 43. ANSWER KEY <ul><li>2a </li></ul><ul><li>Perfect competition </li></ul><ul><li>Monopoly </li></ul><ul><li>Monopsony </li></ul><ul><li>Natural monopoly </li></ul><ul><li>Monopolistic </li></ul><ul><li>Oligopoly </li></ul><ul><li>Economic of scale </li></ul><ul><li>Barriers to entry </li></ul><ul><li>Dominant-firm oligopoly </li></ul><ul><li>Cartel </li></ul>
  44. 44. ANSWER KEY <ul><li>2c </li></ul><ul><li>L – J – F – M - C </li></ul><ul><li>D – I – B </li></ul><ul><li>K – E – G – H - A </li></ul>