2. Markets
• Markets are a group of potential buyers with
needs and wants and the purchasing power to
satisfy them.
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3. Markets
• The market can be defined as an economic
entity because in most cases, a market is
characterized by a dynamic system of
economic forces including supply, demand,
competition, and government intervention..
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4. Market Structure
• Market structure is the number of firms
producing identical products which are
homogeneous.
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5. Market Structure
• The types of market structures include the
following:
Monopolistic competition
Oligopoly
Monopoly
Perfect competition
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6. Perfect competition
• A theoretical market structure that features
no barriers to entry, an unlimited number of
producers and consumers, and a perfectly
elastic demand curve.
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7. Basic structural characteristics
• Infinite buyers and sellers - An infinite
number of consumers with the willingness
and ability to buy the product at a certain
price, and infinite producers with the
willingness and ability to supply the product at
a certain price
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8. Basic structural characteristics
• Zero entry and exit barriers - A lack of entry
and exit barriers makes it extremely easy to
enter or exit a perfectly competitive market.
• Perfect information - All consumers and
producers are assumed to have perfect
knowledge of price, utility, quality and
production methods of products
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9. Basic structural characteristics
• Zero transaction costs - Buyers and sellers do
not incur costs in making an exchange of
goods in a perfectly competitive market.
• Profit maximization - Firms are assumed to
sell where marginal costs meet marginal
revenue, where the most profit is generated.
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10. Basic structural characteristics
• Homogenous products - The qualities and
characteristics of a market good or service do
not vary between different suppliers.
• Property rights - Well defined property rights
determine what may be sold, as well as what
rights are conferred on the buyer
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11. Monopolistic competition
• Monopolistic competition is a type of
imperfect competition such that many
producers sell products that are differentiated
from one another as goods but not perfect
substitutes (such as from branding, quality, or
location).
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12. Monopolistic competition
• In monopolistic competition, a firm takes the
prices charged by its rivals as given and
ignores the impact of its own prices on the
prices of other firms
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13. Monopolistic competition
• Monopolistically competitive markets have
the following characteristics;
There are many producers and many
consumers in the market, and no business has
total control over the market price.
Consumers perceive that there are non-price
differences among the competitors' products
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14. Monopolistic competition
There are few barriers to entry and exit.
Producers have a degree of control over price
The long-run characteristics of a
monopolistically competitive market are
almost the same as a perfectly competitive
market
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15. Monopolistic competition
• There are six characteristics of monopolistic
competition (MC):
Product differentiation
Many firms
Free entry and exit in the long run
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16. Monopolistic competition
Free entry and exit in the long run
Independent decision making
Market Power - Market power means that the
firm has control over the terms and conditions
of exchange.
Buyers and Sellers do not have perfect
information (Imperfect Information)
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17. Oligopoly
• Oligopoly - is a market form in which a market
or industry is dominated by a small number of
sellers (oligopolists). Oligopolies can result
from various forms of collusion which reduce
competition and lead to higher costs for
consumers.
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18. Oligopoly
• With few sellers, each oligopolist is likely to be
aware of the actions of the others. The
decisions of one firm therefore influence and
are influenced by the decisions of other firms
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19. Oligopoly
• Strategic planning by oligopolists needs to
take into account the likely responses of the
other market participants.
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20. Characteristics
• Profit maximization conditions: An oligopoly
maximizes profits by producing where
marginal revenue equals marginal costs
• Ability to set price: Oligopolies are price
setters rather than price takers.
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21. Characteristics
• Entry and exit: Barriers to entry are high.
barriers to entry often result from government
regulation favoring existing firms making it
difficult for new firms to enter the market.
• Number of firms: "Few" – a "handful" of
sellers. There are so few firms that the actions
of one firm can influence the actions of the
other firms
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22. Characteristics
• Product differentiation: Product may be
homogeneous or differentiated (automobiles)
• Perfect knowledge: Oligopolies have perfect
knowledge of their own cost and demand
functions but their inter-firm information may
be incomplete. Buyers have only
unsatisfactory knowledge as to price, cost and
product quality
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23. Characteristics
• Interdependence: The distinctive feature of an
oligopoly is interdependence. Oligopolies are
typically composed of a few large firms. Each
firm is so large that its actions affect market
conditions
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24. Characteristics
• Therefore the competing firms will be aware
of a firm's market actions and will respond
appropriately.
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25. Characteristics
• Non-Price Competition: Oligopolies tend to
compete on terms other than price.
advertisement, and product differentiation are
all examples of non-price competition
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26. Quick Reference to Basic Market
Structures
Market
Structure
Seller Entry
barriers
Seller
Number
Buyer
Entry
barriers
Buyer
Number
Perfect
Competitio
n
No Many No Many
Monopolist
ic
competitio
n
No Many No Many
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27. Quick Reference to Basic Market
Structures
Market
Structure
Seller
Entry
barriers
Seller
Number
Buyer
Entry
barriers
Buyer
Number
Oligopoly Yes Few No Many
Monopoly Yes One No Many
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28. Market segmentation
• With growing diversity in the tastes of modern
consumers, firms are taking note of the
benefit of servicing a multiplicity of new
markets.
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29. Market segmentation
• The market segmentation and corresponding
product differentiation strategy can give a firm
a temporary commercial advantage. Most
market segmentations are the techniques
used to attract the right customer.
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30. Market segmentation
• Due to limited resources, a firm must make
choices in servicing specific groups of
consumers.
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31. Market Segmentation
• Market segmentation can be defined as the
process of dividing a market into different
homogeneous groups of consumers
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32. Market Segmentation
• Market segmentation pertains to the division
of a set of consumers into persons with similar
needs and wants. Market segmentation allows
for a better allocation of a firm's finite
resources.
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33. Objectives of segmentation
• To reduce risk in deciding where, when, how,
and to whom a product, service, or brand will
be marketed.
• To increase marketing efficiency by directing
effort specifically toward the designated
segment in a manner consistent with that
segment's characteristics.
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34. Product differentiation
• The process of creating perceived differences
between the product of one firm and that of
its rivals so that some customers value it more
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35. Target
• A person (or group of people) that a person or
organization is trying to employ or to have as a
customer, audience etc.
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36. Market segmentation
• Market segmentation is a twofold process that
includes:
Identifying and classifying people into
homogeneous groupings, called segments
Determining which of these segments are
viable target markets
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37. The Segmented Market
• The premise of segmenting the market
theorizes that people and/or organizations can
be most effectively approached by recognizing
their differences and adjusting accordingly.
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38. The Segmented Market
• By emphasizing a segmentation approach, the
exchange process should be enhanced, since a
company can more precisely match the needs
and wants of the customer.
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39. The Segmented Market
• While product differentiation is an effective
strategy to distinguish a brand from
competitors', it also differentiates one product
from another.
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40. The Segmented Market
• The objective is to sell more product, to more
people, more often. The problem is not
competition; the problem is the
acknowledgment that people within markets
are different and that successful marketers
must respond to these differences.
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41. Choosing a Target Market from within
a Defined Segment
• While it is relatively easy to identify segments
of consumers, most firms do not have the
capabilities or the need to effectively market
their product to all of the segments that can
be identified. Rather, one or more target
markets (segments) must be selected.
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42. Choosing a Target Market from within
a Defined Segment
• A company selects its target market because it
exhibits the strongest affinity to a particular
product or brand. It is in essence the most
likely to buy the product.
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43. Psychographic segmentation
The division of the market into subsets
according to consumers' lifestyle, personality,
values and social class
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