This Presentation is on Market Structure and its types. Including all the images of revenue, producer equilibrium, its elasticity, examples of all the market, characteristics and features of all the market. This presentation is very helpful in understanding the market structure and the types of market structure.

1. PRESENTED BY
Mohit Negi - 38
Ishant Khanna - 40
Prerna Chawla - 03
Gaurav Goyal - 34
Mir Arsalan Qazi - 58
Vrinda Sahni - 13
ALTERNATIVE
MARKET
STRUCTURES

2. What is a Market?

3. • An Area
• Buyers and Sellers
• One Commodity
• Free Competition
• One Price
Characteristics of a Market

4. What is Market
Structure?

5. • The number and nature of sellers
• The number and nature of buyers.
• The nature of the product.
• The conditions of entry into and exit from the
market.
• Economies of scale.
Determinants

6. • The market gives producers an incentive to
produce goods that consumers want.
• The market provides an incentive to acquire useful
skills.
• The market system involves a high degree of
economic freedom.
• Competition pushes businesses to be efficient:
keeping costs down and production high.
Advantages

7. • Market economies tend to produce a skewed
distribution of income (large gap between the rich
and the poor).
• Prices may give false or inadequate signals to
producers and consumers.
• A private market economy may be quite unstable
(unemployment, growth).
Disadvantages

8. Presented By
Ishant Khanna
Perfect Competition

9. • Perfect competition refers to a market structure in
which there are large number of buyers and sellers.
• The sellers sell identical products.
• No firm can influence the market price of the
product on its own.
• Sellers are price takers and not price makers.
Meaning

10. • Large number of buyers and sellers
• Homogenous product
• Independent decision making
• Freedom of entry and exit of the firms
• Perfect knowledge
• Absence of transport cost
Characteristics

11. • Under perfect competition, price of the commodity
is determined by the forces of market supply and
market demand.
• Equilibrium price of a commodity is determined at
that point where the market demand is equal to the
market supply.
Price Determination

12. Market
supply
Price per
unit
Market
demand
50
40
30
20
10
5
4
3
2
1
10
20
30
40
50

14. A firm in the short run may face three situations:
• It may earn super normal profits
• It may earn normal profits
• It may even suffer minimum losses
Short Run Equilibrium of the Firm

15. Supernormal Profit

16. Normal Profit

17. Minimum Loss

18. Long Run Equilibrium of the Firm

19. Presented By
Prerna Chawla
Monopoly

20. •It exists when one party controls
the supply of a good or service.
What is a Monopoly?

21. • No close substitute
• Restricted entry
• Price maker
• Price is an endogenous variable
• Price discrimination
Features of a Monopoly

22. • Created by patents
• Created by government laws
• Created by natural causes
Types of Monopoly

23. TR ,AR ,MR CURVE UNDER
MONOPOLY

24. TR ,AR ,MR CURVE UNDER MONOPOLY
OUTPUT PRICE TR AR MR
1 20 20 20 20
2 18 36 18 16
3 16 48 16 12
4 14 56 14 8
5 12 60 12 4
6 10 60 10 0
7 8 56 8 -4
8 6 48 6 -8

26. • Supernormal profits
• Break-even point
• Losses
Short Run Equilibrium

27. Supernormal Profits

28. Breakeven Point

29. Losses

30. • When MC is falling
• When MC is constant
• When MC is rising
Equilibrium in a Monopoly

31. Falling MC

32. Constant MC

33. Rising MC

34. • Indian Railways has a monopoly in railroad
transportation in India.
• There is government monopoly over production of
nuclear power.
• Public utilities like water, public buses etc.
Examples of a Monopoly

35. Presented By
Gaurav Goyal
Price Discriminating
Monopoly

36. • Price discrimination is the practice of charging a
different price for the same good or services.
• Types of price discrimination:
• First Degree
• Second Degree
• Third Degree
Definition

37. Monopsony

38. A monopsony means that there is one buyer and
many sellers.
Definition
Characteristics
Three characteristics of monopsony are:
• Single buyer
• No alternatives
• Barriers to entry

39. Bilateral Monopoly

40. • Bilateral monopoly is a market structure in which
there is only a single buyer and a single seller.
• E.g. trade unions and management.
Definition

41. Presented By
Mir Arsalan Qazi
Monopolistic
Competition

42. Monopolistic Competition is a type of imperfect
competition within an industry where:
• All firms produce similar yet not perfectly
substitutable products.
• All firms are able to enter the industry if the profits
are attractive.
• All firms are profit maximisers.
• All firms have some market power, which means
none are price takers.
Definition

43. There are four distinct characteristics:
1. Many sellers
2. Product differentiation
3. Multiple dimensions of competition
4. Ease of entry
Characteristics

44. • When there are many sellers, they do not take into
account rivals’ reactions.
• The existence of many sellers makes collusion
difficult.
• Monopolistically competitive firms act
independently.
Many Sellers

45. • The “many sellers” characteristic gives
monopolistic competition its competitive aspect.
• Product differentiation gives monopolistic
competition its monopolistic aspect.
• Differentiation exists so long as advertising
convinces buyers that it exists.
• Firms will continue to advertise as long as the
marginal benefits of advertising exceed its
marginal costs.
Product Differentiation

46. • One dimension of competition is product
differentiation.
• Another is competing on perceived quality.
• Competitive advertising is another.
• Others include service and distribution outlets.
Multiple Dimensions of Competition

47. • There are no significant barriers to entry.
• Barriers to entry prevent competitive pressures.
• Ease of entry limits long-run profit.
Ease of Entry

48. Product examples include:
• Books
• CDs
• Movies
• Computer Games
• Restaurants
• Furniture, etc.
Examples

49. • Short run is a time period in which at least one
factor of production is fixed; long run is when all
factors of production are variable.
• Essentially, the difference between short and long
run equilibrium is that in short run equilibrium,
the firm can gain abnormal profits. Over the long
run, that is impossible.
Short Run and Long Run

50. Monopolistic Competition v/s Perfect Competition
Monopolistic Competition
• Prices are generally high.
• Firms have total control of the market.
• Firms control the market prices.
• Firms have total market share.
• Difficult entry and exit points.
• Barriers to entry are high.
• Generally involves a single seller.
• Buyers do not have a choice of where
to purchase their goods or services.
Perfect Competition
• Prices are dictated by supply and
demand.
• No one firm has total market control.
• Firms are all price takers.
• Firms have a small market share.
• Firms can enter and exit easily.
• Barriers to entry are relatively low.
• Has many buyers and sellers.
• Consumers are able to choose where
they buy their goods and services.

51. Product
Differentiation

52. • Product differentiation implies that the products are different
enough that the producing firms exercise a “mini-monopoly” over
their product.
• Each firm produces a product that is at least slightly different from
those of other firms.
• Differentiation looks to make a product more attractive by
contrasting its unique qualities with other competing products.
• It creates a competitive advantage for the seller, as customers view
these products as unique or superior.
• Rather than being a price taker, each firm faces a downward-sloping
demand curve.
• The firms compete more on product differentiation than on price.
Definition

53. There are two types of product differentiation:
1. Real
2. Perceived
Types of Product Differentiation

54. • The brand differences are usually minor; they can be
merely a difference in packaging or an advertising theme.
• Differentiation is due to buyers perceiving a difference.
• Causes of differentiation may be:
• Functional aspects of the product or service.
• How it is distributed and marketed.
• Who buys it.
Sources of Product Differentiation

55. The major sources of product differentiation are as follows:
• Differences in quality which are usually accompanied by differences
in price.
• Differences in functional features or design.
• Ignorance of buyers regarding the essential characteristics and
qualities of goods they are purchasing.
• Sales promotion activities of sellers and, in particular, advertising.
• Differences in availability (e.g. timing and location).
Sources of Product Differentiation
(contd.)

56. Presented By
Vrinda Sahni
Oligopoly

57. • It is a form of imperfect competition where a few big firms
compete for their homogeneous products (like cement,
steel & fertilizers) or differentiated products (like
automobile, computers).
• There is interdependence of firms with regard to price-
output decisions.
• Mostly, prices are stable.
• Entry of a new firm in the industry is quite difficult.
• In a way, position of oligopoly lies between that of
monopolistic competition and monopoly.
Definition

58. • A few firms
• Interdependence
• Selling costs
• Price rigidity
• Indeterminate demand curve
• Group behaviour
• Product
• Entry
Features

59. If there is only 1 firm – Monopoly
2 firms only – Duopoly
A few firms (2-20) – Oligopoly
A large number of firms – Monopolistic Competition

60. Pure Oligopoly Differentiated Oligopoly
(Occurs if the product is (Occurs if the products
homogeneous. Eg cement, are differentiated. Eg
steel, chemicals, cooking automobiles, computers)
Gas, basic metals & telecom
sector)
Types of Oligopoly

61. • Huge capital investment
• Absolute cost advantage to the existing firms
• Economies of large scale production
• Mergers
Factors Causing Oligopoly

62. Non- Collusive Oligopoly Collusive Oligopoly
It implies absence of It refers to market structure
explicit or implicit in which few firms cooperate
understanding or agreement to establish price and output
among the firms regarding levels in a particular market.
price fixation, market sharing
or leadership.
Oligopoly

63. • A cartel consists of a group of firms that have
explicitly and openly agreed to work together to set
the price that will be charged in a particular
market.
• A cartel also sets production quotas for each firm.
• The quotas are determined to ensure that price is
not driven below the agreed upon level.
• Cartels are often international.
• Cartels are illegal in the United States.
Collusive Oligopoly – Cartels

64. • The members should agree on price and
production levels and then abide by them.
• If the potential gains from cooperation are large,
cartel members will take initiative and measures to
solve their organizational problems.
• Total demand for the good must not be price
elastic.
• Cartel must control nearly all the world’s supply.
Conditions for Success of Cartels

65. • The most widely recognized example of a cartel is
the Organization of Petroleum Exporting Countries
(OPEC).
• OPEC is an international agreement among oil
producing countries which have succeeded in
raising world oil prices far above what they would
have been otherwise.
• Currently, the organization has twelve members,
namely:
• Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya,
Nigeria, Qatar, Saudi Arabia, United Arab Emirates and
Venezuela.
OPEC

66. • Total world’s demand for oil is price inelastic.
• OPEC controls a large part of world’s supply of oil.
• OPEC oil has low marginal cost of producing oil.
Reasons for Success of OPEC

67. • OPEC is a case of successful cartel as it has been able to
charge a price much above the competitive price.
• In 1970s, OPEC used its monopoly power to drive prices
much above the competitive levels. In the long-run,
OPEC’s demand curve will be much more elastic.
Reasons for Success of OPEC (contd.)

68. • CIPEC (Intergovernmental Council of Copper
Exporting Countries) initially constituted 4
members – Chile, Peru, Zambia and Congo.
• Four more were added in 1975 – Australia,
Indonesia, Papua New Guinea & Yugoslavia.
• Collectively they produced less than half of world’s
copper production.
• It was dissolved during the 1990’s
CIPEC

69. • Total world’s demand for copper is price elastic.
• CIPEC does not control a large part of world’s
supply of copper.
• CIPEC have high marginal cost of producing
copper.
Reasons for failure of CIPEC

70. • CIPEC is a case of unsuccessful cartel as it has not
been able to charge a price much above the
competitive price.
• CIPEC was not successful is raising price even in
the short-run because total demand and
competitive supply of copper is elastic.
• This made CIPEC’s monopoly power small.
Reasons for failure of CIPEC (contd.)

73. Payoff Matrix for the Two Prisoners

74. Thank You