Market
Structures
By Crystal Celestine
01
What is a
02
What is a
Market Market
Structure
03
Types of
04
Features of
Market Different Market
Structures Structures
What is a Market?
• Market is an arrangement which links buyers and
sellers. A Market does not refer to a particular place
or location.
• A market can have different features and can
differ based on:
1. number of buyers,
2. number of sellers,
3. Nature of the product,
4. influence over price,
5. availability of information,
6. conditions of supply etc.
Market
Structure
The characteristics in which a market
operates.
Types of Market Structures
Monopoly Perfect
Competition
Oligopoly Monopolistic
Competition
Types of Market Structure
Monopoly Perfect
Competition
Monopoly, where there Perfect competition, in which the market
is only one provider of consists of a very large number of firms
a product or service. producing a homogeneous product.
Oligopoly Monopolistic Competition
Oligopoly, in which a market is In this market structure, there are a large
dominated by a small number of firms number of independent firms which have a very
which own a significant amount of the small proportion of the market share.
market share.
01
Perfect Competition
Perfect competition is a market structure in which large number of
sellers sell a homogenous product at uniform price.
Characteristics of Perfect
Competition
A market is said to be Perfectly Competitive if it
satisfies the following features:
● Large number of buyers and sellers
● Firms influence in the market is so small, they
cannot influence the market price so that a
firm under perfect competition is a price taker
and not a price maker.
● There are a large number of buyers and an
individual buyer buys only a small portion of
the total output available.
● Homogenous goods : Under perfect
competition all firms sell homogenous goods
which are identical in quantity, shape, size,
colour, packaging etc. So the products are
perfect substitutes of each other.
Characteristics of Perfect
Competition
● Free Entry And Free Exit : Any firm can enter
or leave the industry whenever it wishes.
● Profit Maximization :- The goal of all firms is
maximization of profit.
02
Monopoly
Monopoly refers to the market situation where there is one seller and there is no
close substitute to the commodities sold by the seller. The seller has full control
over the supply of that commodity. Monopoly is a form of market structure
where there is a single seller producing a commodity having no close substitute. •
The word monopoly is derived from two Greek words- Mono and Poly. Mono
means single and Poly means 'seller'. Thus monopoly means single seller.
Characteristics of Monopoly
● Single seller and large number of buyers : Under
monopoly there is one seller and therefore a firm
faces no competition from other firms.
● Though there are large numbers of buyers, no single
buyer can influence the monopoly price by his action.
● No close substitute : Under monopoly there is no close
substitute for the product.
● A pure monopolist is therefore a firm producing a
product which has no substitute among the products
of any other firms.
● Restriction on the entry of new firms : Under
monopoly new firms cannot enter the industry.
Characteristics of Monopoly
● Price maker :- A monopoly firm has full control over
the supply of its products and hence it has full control
over its price also.
● A monopoly firm can influence the market price by
varying it supply, for e.g., It can make the price of its
product by supplying less of it.
● Possibility of Price Discrimination : Price discrimination
is defined as that market situation where a single
seller sell the same commodity at two different prices
in two different markets at the same time, depending
upon the elasticity of demand on the two goods in
their respective market.
03
Monopolistic Competition
It is that form of market in which there are large numbers of sellers selling
differentiated products which are similar in nature but not homogenous, for e.g.
the different brands of soap.
The concept of monopolistic competition is a combination of perfect competition
and monopoly.
Characteristics of
Monopolistic Competition
● Large number of sellers and buyers : In monopolistic
competition the number of sellers is large and each
other act independently without any mutual
dependence.
● The firms under monopolistic competition are not
price takers. They can set prices, however since there
are many substitutes, prices are usually set with
market price in mind.
● Product Differentiation : Most of the firms under
monopolistic sell products which are not homogenous
in nature but are close substitutes.
Characteristics of
Monopolistic Competition
● Non-price Competition : In this case, different firms
may compete with each other by spending a huge
sum of money on advertisements keeping the product
prices unchanged.
● Free Entry And Free Exit : There are no restrictions on
the entry of new firms and the firms decide to leave
the industry.
04
Oligopoly
Oligopoly is a market situation in which there are few firms producing either
differentiated goods or closely differentiated goods. The number of firms is so
small that every seller is affected by the activities of the others.
Oligopoly is a market situations in which there are few (more than two) sellers of
a commodity such that actions of every seller has predictable effect on the other
sellers/rivals. Hence, oligopoly is also called competition amongst the few.
Characteristics of Oligopoly
● Few Sellers : There are few sellers in oligopoly market,
such that number of sellers is small that each and
every seller is affected by the activities of the others.
● Interdependence : The number of sellers is so limited
in the market that each of these firms contribute a
significant portion of the total output. As a result, when
any one of them undertakes any measure to promote
sales, it directly affect other firms and they also
immediately react.
● Prices in this market are moderate because of the
presence of competition. When one company sets a
price, others will respond in fashion to remain
competitive. For example, if one company cuts prices,
other players typically follow suit
Characteristics of Oligopoly
● Nature of Product : A firm under oligopoly may
produce both homogeneous goods eg. insurance and
differential products eg. Automobile Industry.
● Barrier to Entry : The existence of oligopoly in the
long run requires the existence of barrier to the entry
of the new firms. Several factors such as unlimited size
of the market, requirement of huge initial investment
etc. creates such barrier upon the entry of new firms.
Lets Compare…
Nature Barriers to Ability to Number of
of Good Enter
Exit
and set Prices Buyers and
Sellers
Perfect Many buyers
Competition Homoge easy Price takers
And sellers
One seller
Monopoly No sub hard Price makers
many buyers
Few sellers
Monopolistic Diff easy Both
Many buyers
Limited sellers
Oligopoly Both hard Both Many buyers
The End
Do you have any questions?
crystacel@[Link]
738-2416
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