Introduction to market structures

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Introduction to market structures

  1. 1. Introduction toIntroduction to market structuremarket structure modelsmodels
  2. 2. Learning outcomes Understand the characteristics of market structure Understand how firm behaviour is affected by market Define the four market structures Explain and give examples of barriers to entry
  3. 3. Market structureMarket structure The markets in which firms operate differ in the degree of competition and in their structure We can think of there being a spectrum of competition, from very competitive to a total absence of competition. Along this spectrum we can identify FOUR market structures Perfect Monopolistic Oligopoly Monopoly competition competition
  4. 4. Market structure characteristicsMarket structure characteristics Characteristic Perfect competition Monopolistic competition Oligopoly Monopoly No. / size of firms Nature of product Barriers to entry Examples
  5. 5. Characteristic Perfect competition Monopolistic competition Oligopoly Monopoly No. / size of firms Large no. of small firms Large no. of small firms Small no. of large firms One (theory) > 25% mkt share (CC) Nature of product Barriers to entry Examples Market structure characteristicsMarket structure characteristics
  6. 6. Characteristic Perfect competition Monopolistic competition Oligopoly Monopoly No. / size of firms Large no. of small firms Large no. of small firms Small no. of large firms One (theory) > 25% mkt share (CC) Nature of product Identical Differentiated Differentiated No substitutes Barriers to entry Examples Market structure characteristicsMarket structure characteristics
  7. 7. Characteristic Perfect competition Monopolistic competition Oligopoly Monopoly No. / size of firms Large no. of small firms Large no. of small firms Small no. of large firms One (theory) > 25% mkt share (CC) Nature of product Identical Differentiated Differentiated No substitutes Barriers to entry None None High High Examples Farming FOREX Road haulage? Road haulage? Air transport (EU) Air transport (domestic) Bus market (national) Railtrack TOCs (regional / route franchises) London Buses Bus market (regional / Market structure characteristicsMarket structure characteristics
  8. 8. Task 1 Use pp129 – 130 and p34 to identify and explain 7 barriers to entry which might prevent potential competition entering an industry. If possible, give a transport example of each barrier.
  9. 9. Implications for behaviourImplications for behaviour Perfect competition Monopolistic competition Oligopoly Monopoly
  10. 10. Perfect competition Monopolistic competition Oligopoly Monopoly Price takers Must be cost efficient No scope for branding or marketing Low profit margins Implications for behaviourImplications for behaviour
  11. 11. Perfect competition Monopolistic competition Oligopoly Monopoly Price takers Must be cost efficient No scope for branding or marketing Low profit margins Some control over price Must be cost efficient in absence of unique selling point Gains from product differentiation Low profit margins Implications for behaviourImplications for behaviour
  12. 12. Perfect competition Monopolistic competition Oligopoly Monopoly Price takers Must be cost efficient No scope for branding or marketing Low profit margins Some control over price Must be cost efficient in absence of unique selling point Gains from product differentiation Low profit margins Little competition on price High overheads High profit margins Heavy branding, promotion and differentiation Possibility of collusion Implications for behaviourImplications for behaviour
  13. 13. Perfect competition Monopolistic competition Oligopoly Monopoly Price takers Must be cost efficient No scope for branding or marketing Low profit margins Some control over price Must be cost efficient in absence of unique selling point Gains from product differentiation Low profit margins Little competition on price High overheads High profit margins Heavy branding, promotion and differentiation Possibility of collusion Price maker High profit margins Degree of cost inefficiency through ‘slack’ Potential to ‘abuse’ market power Anti- competitive behaviour Implications for behaviourImplications for behaviour
  14. 14. Efficient market structures An efficient market structure must be allocatively efficient (P=MC) productively efficient (min AC)
  15. 15. An efficient marketAn efficient market Price Price Market Typical Firm Quantity Quantity D S P P=AR=MR MC AC
  16. 16. Measuring degree of competition Concentration ratios market share accounted for by largest 3, 5 or 7 firms
  17. 17. Task 2 Answer the following questions from the specimen paper (a) (i) (a) (ii) (b) (i) (b) (ii)

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