FINAL LESSON 2

Market Structure

Learning Outcomes
At the end of the lesson, the students will be able to:
a. Define what is market;
b. Identify the different forms and types of market; and
c. Give examples of each market structure.

Introduction
Market is a place where buyers and sellers meet. Market structure are different
compositions of sellers that sell similar products but distinguish the quality of these
products. It is essential to identify which of the existing market structures a business
belongs to in order to understand the workings of the market system. In this chapter,
we will try to examine why economies take a look at the degree of competition in the
market. How competition influences market behavior affects the way the market will
function in the long run.

Activity
“Fill Me”
Instruction. Fill in the table by giving the product names of each category.
Category Product Name (No limit of Entry of Firms (Choose Free
example)
Or Restricted)
Shampoo

Electricity in Davao
De Oro
Fuel

Analysis
1. How many numbers of produces you’ve answered in all categories, are they the
same in entry of firms?
_________________________________________________________________
_________________________________________________________________
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2. Which of those category is controlled by few? Explain why you say so.
_________________________________________________________________
_________________________________________________________________
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Abstraction/Discussion
Market Structure

We already that consumers lean towards spending less while consuming more. If
more sellers are participating in the market, this will give consumers a wider selections
of alternatives where they can achieve better efficiency in their spending. With this,
producers, in order to sell their products, would tend to lower their prices to attract
more buyers and increase their total revenue profit.

The presence of competition, therefore, causes changes in the prices of goods

and services as well as the quantity produced or sold. In general, this depends on the
number of sellers in the market. At both extreme of competitions, there exist perfect
and imperfect competitions. With perfect competition, no participant in the market can
influence prices whereas in imperfect competition, firms have some influence over
market prices.

Pure Competition

Pure completion is a market structure where there are many buyers and sellers.
Since there are many participants in the market, none of them can cause changes in
prices and quantities of goods and services. For this reason, sellers in markets with
pure competition are also called “price takers.” For example , when a buyer of bangus
at Balintawak Market no longer participates in buying bangus and posts a decrease in
quantity demand, it does not follow that prices will also decrease. This is due to the fact
that a single buyer is insignificant in this kind of structure and can easily be replaced by
new buyers. Sellers also experience the same scenario.

Goods and services in a purely competitive set-up are homogenous or they are
exactly the same. An example is the Japanese corn sold along the Katipunan Avenue in
Quezon City. Notice that the corn sold by one seller is the same corn being sold by
another seller. No single seller can claim that his/her Japanese corn is different from the
others. It is also probable that such corn came from one source. In the same way, the
eggplants sold at nearby talipapa have almost the same price; although some dealers
might give discounts or some freebies but the selling price is nearly the same.

Monopoly

Monopoly is a market structure where there is only one seller that represents the
whole industry. A monopolist, is a “price maker” and profit maximizer since he/she
has the power over market prices. In monopoly there is only one good or services with
no close substitutes; hence, consumers have no choice but to patronized that product
or service.

Although the monopolist is a “price maker,” they are not allowed to charge any
price they want for utilities they provide like water and electricity. Specific government
agencies control their prices. In the Philippine setting, MERALCO first submits a
proposal for an increase in prices of electricity to government agencies (Energy
Regulatory Board), the public sector is informed of such increase, and consultations are
made before the actual increase is undertaken. Other public policies include
nationalization, regulation, and deregulation.

There are cases in monopoly where the same goods or service is offered to
different customers at different selling prices. This practice is called Price
Discrimination. MERALCO is a business which practice discrimination where there is a
different rate for business establishment and for ordinary households. The same is true
for Metropolitan Waterworks and Sewerage System of MWSS and Maynilad Water
Services, Inc. or Maynilad. Lastly, different rates are applied to the same kind of
consumers consuming less of the product and consumers consuming more of the
product.

Oligopoly

Oligopoly is another form of imperfect market structure. In an oligopoly, there is

more than one seller but still few enough that a considerable degree of market power is
also exercised. In this respect, the few players have some abilities to coordinate prices
and production. This is known as cartel.

There are several types of oligopoly; an example is where players are the same
or there are no disparities between them. Another example is a dominant player among
several player; and another instance is where there are only two players. Dominant
players but products are homogenous.

Competitors in this kind of a structure collide and are called “players.”

Either they play as one team or they play in different teams. There are few sellers that
prefer to make alliances than to compete. In a Duopoly, where there are two sellers, it
is best if they work together rather than compete with each other.

Let us say that all three players stored supply of fuel on January 1, 2008. All of
them bought and filled up their depots fully. On January 30, 2008, the prices of fuel in
the world market increased by US$10 per barrel. Player C will increase its price on the
day it refills its depot. Player B has 15 days worth of fuel still in storage, and Player A
has 30 days of fuel left.

But do they increase their prices on the same day? Yes, delaying the increase will
not help Players B and C because it is more profitable to increase the day the first
player increases its price since players A and B still have old stocks at lower prices.

Also when there is a decrease in the prices of oil in the world market, the
smallest player will not decrease its price after 30 days but will wait for 60 days selling
at high prices for the next 30 days. In this example, the smallest player benefited more
than the two other players.

Monopolistic Competition

This kind of a market structure has many sellers selling differentiated products.
This means that products belonging to the same industry seem to be different but
actually they are not. Hair shampoos are example. Though we can see different kinds of
shampoos being sold in the market- different compositions and different target
consumers-they essentially function as personal hair products.

Our personal preference for a certain brands may have a strong influence that
we already use the brand names as generic terms. An example is the term Xerox to
mean photocopy. Another example is Frigidaire which is an old brand of refrigerator. In
this market structure, “ Consumer’s Loyalty” is experienced by the seller, when certain
consumers prefer their brand over others.
 Application
Task . Fill in the table by giving the number of sellers, type or product, entry of
new firms, and example. (Use example as your guide)

Type Sellers Product Entry of New Example

Firms

Pure Many Homogenous Free in production Sugar

Competition and selling of their
products in a
market.

Monopoly

Oligopoly

Monopolisti
c Competition