1. Market structures

2. What is market structure? Market structure refers to the nature and degree of competition in the market for goods and services. The structures of market both for goods market and service (factor) market are determined by the nature of competition prevailing in a particular market.

3. Different Market Structures Pure Competition Pure Monopoly Monopolistic Competition Oligopoly

4. Definition Pure Competition is a market situation where there is a large number of independent sellers offering identical products. Pure Monopoly refers to a market situation where there is only one seller or producer supplying unique goods and services. A one- buyer market situation ins known as monopsony.

5. Monopolistic Competition pertains to a market situation where there is a relatively large number of small producers or suppliers selling similar but not identical products. Oligopoly is associated with a market situation where there are few firms offering standardized or differentiated goods and services. A few buyer market situation is called oligopsony.

6. Characteristics

7. Pure Competition There is a large number of independent sellers. Products are identical or homogeneous. Examples are farm products like corn, fruits, vegetables. No single seller and no single buyer can influence the change in market price of a product.

8. It is easy for new firms or sellers to enter the market and for existing firms or sellers to leave the market. There is no non-price competition like advertising, sales promotion, or packaging. Price taker

9. Pure Monopoly There is only one producer or seller. Products are unique in the sense that there are no good substitutes available. Examples are MERALCO and MIWD. It is extremely difficult for new firms to enter the market. There are several formidable barriers to entry like very big capital and very keen competition. The existing monopolists is an established giant in the industry

10. There may be or no extensive advertising or sales promotion depending on the goods or services of the monopolists. In case there is advertising, it is only for public relations or goodwill to induce more people to buy their products or improve their public image. Price Maker

11. Monopolistic Competition There is a large number of sellers acting independently. Such number means about 100 firms or sellers more or less, while in the case of pure competition, it indicates thousands or more sellers. Products are differentiated. This means physical differences as well as variations in location of store, services of the sales staff, packaging of the product, credit conditions, advertisement, and other sales promotion strategies.

12. There is a limited control of price. It is possible for some sellers to slightly reduce or increase their prices because of the differences of their products. Entry of new firms in the market is relatively easy. It requires bigger capital and the competition is greater in the sense that they have to offer better product features and more effective sales promotion.

13. There is an aggressive non-price competition in product quality, credit terms, services locations, and physical appearance of the product. Price Maker

14. Oligopoly There are very few firms which dominate the market. Each firm produces a big portion of the total industry output. Products are identical or differentiated. Raw materials like steel, zinc, lead, cement and other industrial raw materials are identical. Finished goods like computer, airplane, cars are differentiated.

15. There is a price agreement among the producers to promote their own economic interests. The biggest among the producers is the price leader. Cartel is an organization of independent firms, producing similar products, that work together to raise prices and restrict output. Collusion is a situation in which two or more firms jointly set their prices or outputs, divide the market among them, or make other business decisions jointly.

16. Number of Firms in the Industry Influence Over Price Degree of Product Differentiation Methods of marketing or selling Entry into Market Perfect Competition ManyNoneIdentical, or homogeneous, product substitutable Market exchange Easy Monopolistic Competition ManyLimitedProducts are differentiated, but have close substitutes Advertising, quality rivalry Easy OligopolyFewSomeSome identical, some differentiated Advertising, administered pricing Difficult Pure Monopoly OneExtensiveProducts have no close substitutes Promotional and public relations advertising Almost impossible