1. Chapter 8 An overview of market structures
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Microeconomics 8e, by Jackson & McIver
By Muni Perumal, University of Canberra, Australia

2. Learning objectives
Define and describe the four basic models of alternative market structures, their assumptions, distinguishing features and operation
Explain, briefly, how each of these market structures relates to the demand side of the market
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Microeconomics 8e, by Jackson & McIver
By Muni Perumal, University of Canberra, Australia

3. Learning objectives (cont.)
List the determinants of market structure in our economy
Review other important elements of competition, and how they may lead to differences in the contestability of different types of markets
Provide a brief overview of the remainder of our study of microeconomics
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Microeconomics 8e, by Jackson & McIver
By Muni Perumal, University of Canberra, Australia

4. Market analysis
Market behaviour depends on the degree of competition on both the demand and supply sides
On the supply side a market could have anything between one and very many suppliers
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Microeconomics 8e, by Jackson & McIver
By Muni Perumal, University of Canberra, Australia

5. Four basic market models
There are four market models with varying degrees
of competition in supply:
Pure competition
Pure monopoly
Monopolistic competition
Oligopoly
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Microeconomics 8e, by Jackson & McIver
By Muni Perumal, University of Canberra, Australia

6. Pure competition Distinguishing characteristics:
Very large number of sellers
Standardised (homogeneous) product
‘Price taker’
No individual firm can influence market price
Free entry (and exit)
Absence of non-price competition
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Microeconomics 8e, by Jackson & McIver
By Muni Perumal, University of Canberra, Australia

7. Pure competition (cont.)
Examples:
Precise examples of pure competition are rare
Agricultural commodities fit quite well with competitive model
Various agricultural crops
Fruits
Livestock
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Microeconomics 8e, by Jackson & McIver
By Muni Perumal, University of Canberra, Australia

8. Pure monopoly Distinguishing characteristics: Single seller
No close substitutes
‘Price maker’
The monopolist’s price is the market price
Blocked entry
Barriers to entry are any obstacles that prevent the entry of new firms into an industry
Goodwill advertising
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Microeconomics 8e, by Jackson & McIver
By Muni Perumal, University of Canberra, Australia

9. Pure monopoly (cont.) Examples:
Public utilities such as electricity and water
Steel — BHP Billiton
Sugar — CSR Limited
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Microeconomics 8e, by Jackson & McIver
By Muni Perumal, University of Canberra, Australia

10. Monopolistic competition
Distinguishing characteristics:
Relatively large numbers
Product differentiation
Any tangible or intangible feature that sets it apart from other similar products
Limited price control
Product loyalty or preference will enable some minor price control
Relatively easy entry
Non-price competition
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Microeconomics 8e, by Jackson & McIver
By Muni Perumal, University of Canberra, Australia

11. Monopolistic competition (cont.)
Examples:
Retail trade
Some clothing items e.g. dresses
Petrol stations
Restaurants
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Microeconomics 8e, by Jackson & McIver
By Muni Perumal, University of Canberra, Australia

12. Oligopoly Distinguishing characteristics: Fewness
Standardised or differentiated products
Pricing interdependence
May lead to degrees of collusion
Difficult entry
Advertising and quality competition
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Microeconomics 8e, by Jackson & McIver
By Muni Perumal, University of Canberra, Australia

13. Oligopoly (cont.) Examples Aluminium ingots (standardised)
Bank services
Beer (differentiated)
Information media
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Microeconomics 8e, by Jackson & McIver
By Muni Perumal, University of Canberra, Australia

14. Characteristics of the four basic market models
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Microeconomics 8e, by Jackson & McIver
By Muni Perumal, University of Canberra, Australia

15. Market structure and the buyer’s side of the market
Perfect/pure competition
Many buyers
Monopsonistic competition
Fairly large number of buyers
Oligopsony
Few buyers of the product
Monopsony
Only one buyer of the product
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Microeconomics 8e, by Jackson & McIver
By Muni Perumal, University of Canberra, Australia

16. Market structure based on number of buyers
Bilateral monopoly
A single seller and one buyer
Imperfect competition
All market structures that deviate from pure/perfect competitive model
Market characteristics are equally applicable to resource markets
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Microeconomics 8e, by Jackson & McIver
By Muni Perumal, University of Canberra, Australia

17. Determinants of market structure
Legislation and government policies
Some promote competition and some monopoly
The policies and practices of business firms
Mergers, consolidations, and foreign multinationals — monopoly/oligopoly
Technological considerations
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Microeconomics 8e, by Jackson & McIver
By Muni Perumal, University of Canberra, Australia

18. Other competitive dimensions
Geographical factors
Location can influence degree of competition
Inter-industry competition
Aluminium could face competition from other products
Technological advances
New products and technology can change competitiveness over time
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Microeconomics 8e, by Jackson & McIver
By Muni Perumal, University of Canberra, Australia

19. Contestable markets
Markets where entry to and exit from the industry can be accomplished at low or very low cost
Market contestability limits the ability of monopolists to use pricing powers to achieve economic profits
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Microeconomics 8e, by Jackson & McIver
By Muni Perumal, University of Canberra, Australia

20. International trade
International trade has a major impact on market power
International trade, which by providing an alternative source of supply, may substitute for domestic consumption
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Microeconomics 8e, by Jackson & McIver
By Muni Perumal, University of Canberra, Australia

21. Next chapter: The costs of production
Copyright  2007 McGraw-Hill Australia Pty Ltd PPTs t/a Microeconomics 8e, by Jackson & McIver
By Muni Perumal, University of Canberra, Australia