DETERMINING THE

FACTORS AFFECTING THE

MARKET POWER IN THE
DEGREE OF
COMPETITION
 Contents
• Definition of
Competition
• 4 Market Structures /
Degree of Competition
• Factors That Determine
the Degree of
Competition
• Market Power
Competition
Competition is a situation in
which someone is trying to win
something or be more successful
than someone else.
Competition
In economics, it is defined as an activity
involving two or more firms, in which
each firm tries to get people to buy its
own goods in preference to the other
firm’s goods. For example, by offering
different products, better deals or by
other means.
Competition
In other words, it is simply the
effort of enterprises to be leaders
in their industry and increase
their market share.
Market Structure
Market structure, in economics, refers
to how different industries are classified
and differentiated based on their
degree and nature of competition for
goods and services. It is based on the
characteristics that influence the
behavior and outcomes of companies
working in a specific market.
Market Structure
Business entities comprise also an
economy. In the economy, firms differ
from one another on how to allocate
their resources to produce the products
and how to deliver them to the
consumers. They have to plan how to
meet the demands of the consumers
and participate in the market.
Market Structure
In the article of AU Online
(2017), A Guide to Types of
Market Structures, it defined
market structure as a starting
point for assessing economic
environments of firms.
Market Structure
It also mentioned market structure as a tool
of understanding of how companies and
markets work allows business professionals
and leaders to accurately judge industry and
market news, policy changes and legislation
and how the economy shapes important
decisions.
Market Structure and
Characteristics
Each market structure has characteristics which
determine the relations between the sellers to
another, of sellers to buyers, company to investors,
economists to government and more which affect
the behavior and interaction of buyers and sellers.
Remember that market is a set of buyers and
sellers who determine the price of goods and
services.
4 Market
Structures
 Perfect Competition
Perfect competition occurs when there is a
large number of small companies competing
against each other. They sell similar products
(homogeneous), lack price influence over the
commodities, and are free to enter or exit the
market.
 Perfect Competition
Perfect competition is a type of market
structure where many products are
similar and may substitute each other since
they have the same features, price and,
quality.
 Perfect Competition
There are many sellers and consumers in this type
of market with almost the same products.
Moreover, a perfectly competitive market requires
few barriers to enter and it is easy for producers to
quit whenever they want. They also have uniform
prices that depend on the demand and supply
which means that the market has full control over
implying prices.
 Perfect Competition
Perfectly competitive markets show these
characteristics:
• Both the producers and consumers have perfect
knowledge without information failures. The details
and information in this market are easily accessible
to all participants. Thus, risk-taking is not
necessarily important and the power of an
entrepreneur is limited.
 Perfect Competition
• Producers and consumers are making
coherent decisions for their benefit. For
instance, producers make decisions to
maximize their profits, and consumers make
decisions to maximize their utility.
 Perfect Competition
• There are no hindrances to enter nor exit from
this type of market.
• Companies manufacture identical products that
are not branded.
• Producers don’t have the power to influence the
market price nor the
condition.
 Perfect Competition
• Many and small sellers and no one can affect the
market
• Homogeneous product is offered by the
companies
• Free entry to and exit from the industry
• All firms only have the motive of profit
maximization
 Perfect Competition

• No concept of consumer preference

• Consumers can dictate the price
 Monopoly
A monopoly pertains to a situation wherein there is
only a single company that produces a certain
product in the entire market. Because of that, they
have the power or the authority to manipulate
their products, such as minimizing their outputs to
put higher prices in it and to gain more profit. In
this situation, consumers have a lesser benefit,
especially when the product is essential to them,
making them buy it despite being expensive.
 Monopoly
• In a monopoly market, a single company
represents the whole industry. It has no
competitor, and it is the sole seller of products in
the entire market. This type of market is
characterized by factors such as the sole claim to
ownership of resources, patent and copyright,
licenses issued by the government, or high initial
setup costs.
 Monopoly
Monopolies commonly emerge because there
is a high barrier to entry and exit in
a particular market. The three main factors
that can become the reason for it are the
following.
 Monopoly
• Ownership of a fundamental resource - If
the key resource is solely owned by
a firm, the firm can limit the access to this
source, therefore creating a
monopoly.
 Monopoly
• Economies of scale – In some sectors, a
single firm can sustain products or
goods at a lower price than two or more firms
could, resulting in a natural
monopoly, which arises even without the
intervention of the government.
 Monopoly
• Government Regulation – To suffice the
interest of the public, the government
usually restricts market entries in a legal way,
which is through copyright
laws and patents.
 Monopoly
• A single seller and no competitors in
the market
• "Very unique and highly predictable
product or no close substitutes
• The firm is the price maker and the
firm has considerable control over the
price
 Monopoly
• It can control the quantity supplied
• Entry/exit is difficult and blocked
• Sole seller has the full power to set
prices
• Examples are public transportations
like MRT, computer software
manufacturer like Microsoft
 Monopolistic Competition
• Monopolistic competition refers to an imperfectly
competitive market with the traits of both the
monopoly and competitive market. Sellers
compete among themselves and can
differentiate their goods in terms of quality and
branding to look different. In this type of
competition, sellers consider the price charged
by their competitors and ignore the impact of
their own prices on their competition.
 Monopolistic Competition
When there is a numerous quantity of
small firms competing against each
other, it is called a Monopolistic
Competition. However, in this type of
market structure, several companies sell
the same product but they have their
differences.
 Monopolistic Competition
Those differences give them market power
which lets them charge higher prices for a
product, but is within a certain range. These
key factors can include style, brand name,
location, packaging, advertisement, and
pricing strategies, which became every firm’s
basis in marketing.
 Monopolistic Competition
You can assume the following when
discussing the monopolistic competition:
• Every firm is a price setter and can
maximize their profit.
• They sell similar yet slightly different
products.
• The consumers can favor a product more
than the other one.
 Monopolistic Competition
• There are easy entrances and exit in this
market. This type of market structure can be
observed in reality. Some of the common
examples are:
• Cap’n Crunch, Lucky Charms, Froot Loops,
and Apple Jacks, which are all
companies that sell breakfast cereals with
small differences.
 Monopolistic Competition
• McDonald and Burger King, which both
sell slightly different burgers
• Nike and Adidas, which both sell
running shoes, but are different in some
ways.
 Monopolistic Competition
• The company initially produces many
products as the demand is high. Therefore,
its Marginal Revenue (MR) corresponds to
its Marginal Cost (MC). However, MR
diminishes over time as new companies
enter the market with differentiated
products affecting demand, leading to less
profit.
 Monopolistic Competition
• Multiple giant firms produce similar and
highly predictable products
• Profit maximization occurs
• Where MC-MR
• Firms compete for economic profits
• A competitive market that has only a
handful of buyers and sellers
 Monopolistic Competition
• Sellers offer close substitutes products
to consumers
• Comparatively easier entry and exit
• Examples: cosmetics, garments,
medicines, shoes, car washes,
automotive services, etc.
 Oligopoly
• An oligopoly is a type of market structure
where firms dominate the market by
supplying either similar or differentiated
products. There are only a few companies
in this structure and they have control over
price implying. It is also difficult to enter
this market since there are a lot of
barriers.
 Oligopoly
• Moreover, participants in oligopolies are
price setters rather than takers. Some
examples of oligopoly companies are the
automobile industry, the steel industry,
aircraft manufacturing industry, etc.
 Oligopoly
Oligopoly markets show these characteristics:
• Entrepreneurs maximize profits.
• Oligopolies set prices rather than take price.
 Oligopoly

• There are a lot of barriers. It includes

government licenses, economies of scale,
patents, and access to expensive and
complex technology. Also, some
government policies are favoring the
current companies in the industry so it is
hard to enter for beginners.
 Oligopoly

• Interdependent. Like for example, if one

firm change and decreases its price, it will
significantly affect the other firms.
• Rampant advertising since most companies
use national media to promote their
products.
 Perfect Competition
Monopoly
Monopolistic Competition
Oligopoly
Comparisons between
each market structures
• Let us now compares the different
market structures on the basis of:

• (I) Degree of Price Control

• (II) Nature of Demand Curve
• (III) Influence on Activities of other Firms
(I) Degree of Price Control:

i. Perfect Competition:
A firm under Perfect competition is a
Price-taker, i.e. an individual firm has
no control over the price and has to
accept the price as determined by the
market forces of demand and supply.
(I) Degree of Price Control:

ii. Monopoly:
A monopolist is a Price-Maker, i.e., a
firm has complete control over the
price and fixes its own price.
(I) Degree of Price Control:

iii. Monopolistic Competition:

A firm under monopolistic competition has
partial control over the price, i.e. each firm is
neither a price-taker nor a price-maker. An
individual firm is able to influence the price
by creating a differentiated image of its
product through heavy selling costs.
(I) Degree of Price Control:

iv. Oligopoly:
A firm under oligopoly follows the
policy of price rigidity. Although, the
firm can influence the prices, but it
prefers to stick to its prices so as to
avoid a price war.
(II) Nature of Demand Curve:

i. Perfect Competition:
The demand curve for a perfectly
competitive firm is perfectly elastic as it
has to accept the price fixed by the
market forces of demand and supply.
(II) Nature of Demand Curve:

ii. Monopoly:

The monopoly firm faces a downward

sloping demand curve as more quantity
can be sold only at a lower price.
(II) Nature of Demand Curve:

iii. Monopolistic Competition:

The firm under monopolistic competition
also faces a downward sloping demand curve
as more quantity can be sold only at a lower
price. However, the demand curve is more
elastic in comparison to demand curve
under monopoly because of presence of
close substitutes.
(II) Nature of Demand Curve:

iv. Oligopoly:
The demand curve for an oligopoly firm
is indeterminate, i.e. it cannot be drawn
accurately as exact behaviour pattern of
a producer cannot be ascertained with
certainty.
(III) Influence on Activities of
other Firms:

i. Perfect Competition:
Each firm is so small that its
behaviour has no influence on the
decisions of other firms operating in
the market.
(III) Influence on Activities of
other Firms:

ii. Monopoly:
There is only one firm in the industry.
Therefore, the question of reaction from
other firms does not arise, i.e.
monopolist has full control over the
industry.
(III) Influence on Activities of
other Firms:

iii. Monopolistic Competition:

There are large numbers of firms and
behaviour of each firm has less
impact on activities of other firms.
(III) Influence on Activities of
other Firms:

iv. Oligopoly:
There are few firms and behaviour of
each firm has significant impact on
activities of other firms.
Market Power
Market Power
Market power refers to a company's relative
ability to manipulate the price of an item in
the marketplace by manipulating the level of
supply, demand or both.
Market Power
A company with substantial market power has
the ability to manipulate the market price and
thereby control its profit margin, and possibly
the ability to increase obstacles to potential
new entrants into the market.
Market Power
Firms that have market power are often
described as "price makers" because they can
establish or adjust the marketplace price of an
item without relinquishing market share.
Market Power
Firms that have market power are often
described as "price makers" because they can
establish or adjust the marketplace price of an
item without relinquishing market share.
Factors Affecting
The Market Power
There are several factors that determine the
degree of competition in a market, which
ultimately influences market power. Some of
these factors include:
1. Number of firms:
The number of firms operating in the market
is a crucial determinant of competition. In a
market with a large number of competitors,
the level of competition is higher, leading to
lower market power for individual firms.
2. Barriers to entry:
The presence of barriers to entry can restrict new
firms from entering the market and competing
against existing firms. Higher barriers to entry,
such as high capital requirements or legal
restrictions, create a less competitive market
environment and allow existing firms to maintain
higher market power.
3. Product differentiation:
The extent to which firms can differentiate their
products or services from competitors can
influence the level of competition. In markets
where products are highly differentiated, firms
may have more market power as they can charge
higher prices based on unique features or brand
loyalty. Conversely, markets with lower levels of
product differentiation tend to have more
competition, reducing market power.
4. Market concentration:
Market concentration refers to the
dominance of a few large firms in a market.
When a few firms control a significant
market share, they have greater market
power and can influence prices and market
conditions. Higher market concentration
often leads to reduced competition.
5. Government regulations:
Government regulations and policies can
impact competition in a market. Regulations
that limit entry or restrict competition can
increase market power for existing firms.
On the other hand, regulations aimed at
promoting competition, such as anti-trust or
anti-monopoly laws, can reduce market
power.
6. Technological advancements:
Technological advancements can disrupt
industries and alter the level of competition. New
technologies can lower barriers to entry, promote
innovation, and increase competition, reducing
market power for existing firms.
7. Market concentration:

Market concentration refers to the dominance of a few

large firms in a market. When a few firms control a
significant market share, they have greater market
power and can influence prices and market conditions.
Higher market concentration often leads to reduced
competition.
8. Consumer switching costs:
If consumers face high costs when switching
from one product or service to another, it can
weaken competition in the market. Higher
switching costs allow firms to maintain market
power as consumers may be less likely to switch
to alternative products or services.
Members:

Pineda, Jihro
Quiming, Jasper
Villanueva, Leonard
Gamino, Kaycee
Martin, Mikyllah
Padilla, Aira