2. Market Structure
• Refers to the components of a market
expressed in terms of
1. Number of buyers & sellers
2. Price taker or price maker buyers
3. Entry & exit conditions
4. Price vs. non price competition
5. Equilibrium of the firm
6. Buyer’s knowledge on the products etc…
3. Market structures
The firm in competitive Non-perfect competition
markets
Monopoly
Perfect
competition
Oligopoly
Monopolistic
competition
4. Features of Perfect Competition
Large number of buyers & sellers
Freedom of entry & exit
Homogeneous or Identical product
Price-taker
Perfect information
No barriers to entry (legal, technological, resource)
No technical progress
No investment lag - Immediate implementation of
production decisions
Firms demand curve, Price line, AR & MR curve are
equal
5. Equilibrium for a Perfect Market Firm
• Equilibrium condition is MC=MR
• Short run condition: firm makes losses due to
easy entry of other firms
• Long run condition: all the firms make normal
profits
6. Features of Monopoly
• One firm in industry
• Downward sloping demand curve, AR & MR
curve
• No close substitutes
• Price-maker
• No restrictions on resources
• Blockaded entry and/or exit
• No close competitors
7. Types of Monopoly
• Resource based monopoly
• Government promoted monopoly
• Natural monopoly
8. Price & Output of Monopoly firm
• Equilibrium condition: MR=MC
• Short run profits: Super Normal Profits and
also some times Losses.
• Long run profits: Super Normal Profits
9. Price Discrimination
• A monopoly firm can adopt price
discrimination as a rational plan of action in its
profit maxi plan.
• It depends on the monopoly firm’s ability to
separate the customers based on their
willingness to pay.
• There can be 3 types of discrimination in
monopoly market.
10. Types of Price Discrimination
1. First Degree:
Charging different prices based on their ability to
pay for the products.
2. Second Degree:
Charging different prices based on their ability to
buy products in bulk but not per unit.
3. Third Degree:
Charging different prices based on the ability of the
manufacturer to classify his customers into
various segments.
11. Monopolistic Competition
• Large number of buyers & sellers
• Free entry & exit
• Price maker
• Product differentiation
• Advertising
12. Price & Output of Monopolistic firm
• Equilibrium condition: MR=MC
• Short run profits: Super Normal Profits for
some firms, normal or zero economic profits
for few firms and also losses for newly
entered firms.
• Long run profits: Normal Profits or Zero
Economic profits
13. Oligopoly market
• Few sellers but large in size
• Price rigidity
• Advertising
• Identical products
• Monopoly power for each firm
• Interdependency of firms
14. Collusive Oligopoly
• When firms operating in a oligopoly agree to
each other about the price and output that
each firm has to follow is called Collusive
Oligopoly.
• Cartel is the market behavior in which all the
firms operating in a market act in the similar
manner.
• Price Leadership is a market condition where
in one firm acts as a leader and set the price
for product and all others follow firm’s price.
