The document discusses different types of market structures: 1) Monopolistic competition is characterized by many firms producing similar but differentiated products that are not perfect substitutes for one another. Firms compete by differentiating their products and set prices taking competitors' prices as given. 2) Perfect competition exists when many small firms produce identical products and are price takers. There are no barriers to entry or exit. 3) Monopoly is dominated by a single seller of a unique product without close substitutes. Monopolists can influence market prices. 4) Oligopoly has a small number of interdependent firms that recognize how each other's actions impact prices and market shares.

1. Market Structure

2. In economics, market structure is the
number of firms producing
identical products which are
homogeneous.
such as the number and
relative strength of buyers and sellers and
degree of collusion among them, level
and forms of competition, extent
of product differentiation, and ease
of entry into and exit from the market

3. Things can be considered:
 Number and size of sellers and buyers
 Type of the product
 Conditions of entry and exit
 Transparency of information

4. Types of market structures
Monopolistic competition
• Perfect competition
Oligopoly
Monopoly
• Natural Monopoly

5. Monopolistic competition
a type of imperfect competition such that many producers
sell products or services that are differentiated from one
another (e.g. by branding or quality) and hence are not
perfect substitutes.
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.

6. Monopolistic competition
Multiple firms produce similar
products
Firms face down sloping demand
curves
Profit maximization occurs where
MC=MR
In the limit, firms compete away
economic profits

7. In monopolistic competition, an industry
contains many competing firms, each of which
has a similar but at least slightly different
product. Restaurants, for example, all serve
food but of different types and in different
locations. Production costs are above what
could be achieved if all the firms sold identical
products, but consumers benefit from the
variety.

8. Are these milk different?

9. Perfect Competition
In economic theory, perfect competition
(sometimes called pure competition)
describes markets such that no participants
are large enough to have the market
power to set the price of a homogeneous
product.
Because the conditions for perfect
competition are strict,
Example: Agriculture Products

10. The theoretical Perfect Competition situation in which the following conditions are
met:
(1) buyers and sellers are too numerous and too small to have
any degree of individual control over prices,
(2) all buyers and sellers seek to maximize their profit (income),
(3) buyers and seller can freely enter or leave the market,
(4) all buyers and sellers
have access to information regarding availability, prices,
and quality of goods being traded, and
(5) all goods of a particular nature are homogeneous, hence substitutable
for one another.

11. Basic Importance of Perfect Competition
A large number buyers and sellers
A large number of consumers with the willingness and ability to buy the
product at a certain price, and a large number of producers with the willingness and
ability to supply the product at a certain price
No barriers of entry and exit
No entry and exit barriers makes it extremely easy to enter or exit a perfectly
competitive market.
Perfect factor mobility
In the long run factors of production are perfectly mobile, allowing free long
term adjustments to changing market conditions.
Zero transaction costs
Buyers and sellers do not incur costs in making an exchange of goods in a
perfectly competitive market.

12. Property rights
Well defined property rights determine what may be sold, as well as what
rights are conferred on the buyer.
No externalities
Costs or benefits of an activity do not affect third parties.
Homogeneous products
The products are perfect substitutes for each other, (the qualities and
characteristics of a market good or service do not vary between different suppliers).
Rational buyers
Buyers are capable of making rational purchases based on information given.

13. Identical Products
Many buyer/sellers

14. Monopoly

15. From the (Greek word monos “Alone” or
“Single” and polein “To sell”)
• Exist when a specific person or enterprise is
the only supplier of a particular commodity.
• On the other hand, it is a marker structure in
which there is only one producer/seller for a
product.

16. Characteristics
• Profit Maximizer – Maximizes profit
• Price Market – Decides the price of the good to be sold
• High Barriers – Other sellers are unable to enter the market
of the monopoly.
• Single Seller – In a monopoly, there is one seller of the good
that produces all the output
• Price Discrimination – A monopolist can change the price
and quality of the product

17. Source of Monopoly Power
Monopolies derive their market power from barriers to enter-
circumstances that prevent a greatly impede a potential competitor’s
ability to compete in a market.
• Economic Barriers – Economic barrier include economics of scale,
capital requirements, cost of advantages and technological superiority.
• Economies of Scale – Monopolies are characterized by decreasing
costs for a relatively large range of production.
• Capital Requirement – Production processes that require large
investment of capital.
• Technological Superiority – A monopoly may be better able to
require integrate and use the best possible technology in producing its
goods.

18. • No Substitutes Goods – A monopoly sells a good for which there
is no close substitute.
• Control of Natural Resources – A prime source of monopoly
power is the control or resources that are critical to the production
of a final good.
• Network Externalities – The use of product by a person can affect
the value of that product to other people.
• Legal Barriers – Legal rights can provide opportunity to
monopolise the market of a good.
• Deliberate Actions – A company wanting to monopolise a market
may engage in various types of deliberate action to exclude
competitors or eliminate competetion.

19. Oligopoly

20. From (Greek words oligos means “Few” and
polein “to sell”)
• Is a market form in which a market or industry is dominated
by a small number of sellers (oligopolists).
• Oligopolists can result from various forms of collusion which
reduce competition and lead to higher prices for consumer's.
Oligopoly has its own market structure.
• An oligopoly is a market structure in which a few firms
dominate. When a market is shared between a few firms, it is
said to be highly concentrated. Although only a few firms
dominate, it is possible that many small firms may also operate
in the market.

21. Characteristics
• Profit maximization conditions – An oligopoly maximizes profits.
• Ability to set price – Oligopolies are price setters rather than price takers
• Entry and exit – Barriers to entry are high. The most important barriers
are government licenses, economies of scale, patents, access to expensive
and complex technology, and strategic actions by incumbent firms designed
to discourage or destroy nascent firms.
• 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.
• Long run profits - Oligopolies can retain long run abnormal profits. High
barriers of entry prevent sideline firms from entering market to capture
excess profits.
• Product differentiation - Product may be homogeneous (steel) or
differentiated (automobiles).

22. • Perfect knowledge - Assumptions about perfect
knowledge vary but the knowledge of various economic
factors can be generally described as selective. Oligopolies
have perfect knowledge of their own cost and demand
functions but their inter-firm information may be
incomplete. Buyers have only imperfect knowledge as to
price, cost and product quality.
• Non-Price Competition - Oligopolies tend to compete on
terms other than price. Loyalty schemes, advertisement, and
product differentiation are all examples of non-price
competition.