Market Structures

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INTRODUCTION TO MARKET STRUCTURE

• Market structure is best defined as the
  organizational and other characteristics of a
  market.
• FEATURES
• The number of firms.
• The market share of the largest firms.
• The nature of costs. 
• The turnover of customers. 

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Four Basic Market Structures
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CLASSIFICATION OF MARKET STRUCTURES
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Perfect Competition
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Perfect Competition

• In economic theory, perfect competition (sometim
  es called pure competition) describes markets
  such that no participants are large enough to
  have the market power to set the price of a
  homogeneous product. Because the conditions
  for perfect competition are strict, there are few
  if any perfectly competitive markets.
  Wikipedia

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Characteristics

• A large number of small firms,
• A homogeneous product, and
• Very easy entry into or exit from the market.

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Large Number Of Small Firms

• The large-number-of-sellers condition is met when
  each firm is so small relative to the total
  market that no single firm can influence the
  market price.

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Homogeneous Product

• If a product is homogeneous, buyers are
  indifferent as to which sellers product they
  buy.

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Very Easy Entry And Exit

• Perfect competition requires that resources be
  completely mobile to freely enter or exit a
  market.

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Perfect Competitive Firm as a Price Taker

• The term Price Taker means that it is a seller
  present in the market who does not have any
  control over the price of the product it sells in
  the market.

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Perfect Competitive Firm As A Price Taker
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Short-Run Profit Maximization for a Perfectly
Competitive Firm

• in a perfectly competitive market no individual
  firm decides the price of a product.
• Two methods which ensure profit maximization
• Total Revenue-Total Cost Method
• Marginal Revenue Equals Marginal Cost Method

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Total Revenue Total Cost Method
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Marginal Revenue Equals Marginal Cost Method
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Three Types Of Long-Run Supplies

• Three Types of Long-Run Supplies are
• Constant-Cost Industry
• Decreasing-Cost Industry
• Increasing-Cost Industry

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FEATURES

• No Competition
• Abnormal Profits
• Price Makers
• Barriers to Entry
• Imperfect Information
• Non-Homogeneous Products

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BARRIERS TO ENTRY
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NATURAL BARRIERS

• Control of Supply
• Economies of Scale
• Expense
• Legal Considerations

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ARTICIAL BARRIERS

• Restriction on Supplies
• Predatory Pricing
• Exclusive Dealing

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ADVANTAGES OF MONOPOLY

• Economies of Scale
• Research and Development
• Lower Prices
• The ability to compete in Global Markets

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DISADVANTAGES OF MONOPOLY

• Poor levels of services
• Low output and high prices
• Producer sovereignty

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The Price a Monopolist Will Charge

• To determine the profit-maximizing price (where
  MC MR), first find the profit maximizing
  output.

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Determining the Monopolists Price and Output
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A Monopolist Making a Profit

• A monopolist can make a profit.

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A Monopolist Making a Profit
Price
Quantity
0
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A Monopolist Breaking Even

• A monopolist can break even.

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A Monopolist Breaking Even
Price
Quantity
0
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A Monopolist Making a Loss

• A monopolist can make a loss.

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A Monopolist Making a Loss
Price
Quantity
0
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Monopoly Profit and Loss

• A monopolist will suspend operations in the short
  run if its price does not exceed the average
  variable cost at the quantity the firm produces.
• A monopolist will shut down permanently if
  revenue is not likely to equal or exceed all
  costs in the long run.
• In contrast, however, if a monopolist makes a
  profit, barriers to entry will keep other firms
  out of the industry.

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What is Oligopoly?

• Oligopoly is a market structure characterized by
  a small number of relatively large firms that
  dominates an industry. The market can be
  dominated by as few as two firms or as many as
  twenty, and still be considered oligopoly.
• Oligopolies can result from various forms of
  collusion which reduce competition and lead to
  higher costs for consumers

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FEATURES

• The distinctive feature of an oligopoly is
  interdependence. Oligopolies are typically
  composed of a few large firms.
• Each firm is so large that its actions affect
  market conditions.
• The competing firms will be aware of a firm's
  market actions and will respond appropriately.

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Types of Oligopolies

• Pure Oligopoly
• Differentiated Oligopoly
• Collusive Oligopoly
• Non-collusive Oligopoly

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CHARACTERISTICS

• Small Number of Large Firms
• Identical or Differentiated Product
• Barriers to Entry
• Profit maximization condition
• Perfect knowledge
• Non price competition
• Mergers
• Collusion

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Kinked Demand Curve

• Kinked-Demand Curve is used to illustrate
  short-run activity of Oligopoly.
• Primary use of the kinked-demand curve is to
  explain price inflexibility in oligopoly market.
• It has two distinct segments with different
  elasticity that joins to form a bend which is
  termed as kink. The two segments are
• A relatively more elastic segment for price
  increases
• A relatively less elastic segment for price
  decreases.

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Kinked Demand Curve
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DUOPOLY

• When there are two sellers only that market
  situation is known as Duopoly.
• Augustine Cornet (1801-77) originally allied the
  theory of duopoly .

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The Two Principal Duopoly Models

• Bertrand Duopoly The Bertrand model, wherein, a
  game of two companies, each one of them will
  shoulder that the second company will not change
  the prices in reaction to its price cuts.
• Cornet Duopoly The Cournot model, which shows
  that two companies assume each other's output and
  gives this as a fixed amount, and produce in
  their own firm according to this.

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MONOPOLISTIC COMPETITION

• When all or some of the conditions of perfect
  competition are not present, the market is called
  imperfect competition.
• Monopolistic competition is one of the kinds of
  imperfect competition.
• The basic product in monopolistic competition
  stays the same.

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CHARACTERISTICS

• Many sellers in market
• Differentiated products
• Ease of entry or exit
• Information is readily available
• Firms are price makers
• Firms usually have to engage advertising.

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Monopolistic Competition in Long Run

• Super-normal profits attract in new entrants
  because of which the demand curve for the old
  firms shifts to the left or you can say the
  demand for the product of old firms decreases.
  New firms will only continue till they would get
  the normal profits

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Types of Price Discrimination

• By time
• By geography
• By branding
• By age group

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Advantages of price discrimination to the firm

• Earn higher revenue
• Have higher sales
• Earn higher profit
• Have higher capacity utilization
• Have lower average fixed cost
• Have higher market share.

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Market Structures in a Nutshell
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Types of Market Structures

• Perfect Competition Many firms, freedom of
  entry, homogeneous product, normal profit.
• Monopoly One firm dominates the market, barriers
  to entry, possibly supernormal profit.
• Oligopoly An industry dominated by a few firms.
• Monopolistic Competition Freedom of entry and
  exit, but firms have differentiated products.
  Likelihood of normal profits in the long term.
• Duopoly When there are two sellers only that
  market situation is known as Duopoly. It is the
  simplest form of Oligopoly

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CONCLUSION
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SUBMITTED BYMarium Mahmood (1411153) Asad Khan
(1411156) Yumna Waqar (1411171) Sanabil Zehra
(1411165) Nabeel Hafeez Hoorani (1411160)
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THANK YOU!