Economics:

"Market Structure"
Irish Kate Mantigue
Student-Teacher
 Industries vary according to number and size of firms, type of product produced,
and degree competition. An industry is any group of firms that produce or sell
identical products. Some industries are big; others are small. Some are vibrant and
innovative, while others are stagnant and boring.

Market structure differentiates industries. The term refers to

the degree and nature of competition among firms operating
in the industry.
 Market structure have two broad types:

• Perfect competition- is invariably known as pure competition.

• Imperfect competition- is classified further into monopolistic
competition, oligopoly and monopoly.
PURE COMPETITION
IT IS A MARKET CONDITION ENVISIONED BY ADAM SMITH IN HIS BOOK
WEALTH OF NATIONS.
 PURE COMPETITION

There are a few conditions before a pure

competition exists:

•There are many buyers and sellers

•There is freedom of enterprise
•The products are homogeneous
•The factors of production are mobile
•The buyers and sellers are knowledgeable
about the developments in the market
SAmple
Market
 In the Philippines, the market that comes closest to pure
competition is the ordinary rock table salt market. The
rock table salt sold in Philippines markets is
homogenous, and the price is generally stable and
affordable. There are many manufacturers and sellers of
the product throughout the country. The government
hardly regulates the market.

Sample
Market Salt production is common in coastal areas, and anyone
is free to engage in the business. Generally, producers
do not consider themselves as fierce business
competitors. Many engage in the business primarily for
livelihood and subsistence purposes.
 The Philippine rice industry used to be a good example
of pure competition. The introduction of different
varieties of rice since the 1970s has made the product
less homogenous. Consumers are now very particular
about the variety of rice they buy.
Sample
Market The national government, through the National Food
Authority (NFA), intervenes in the market. Somehow, it
competes with private suppliers.
 •It is easy to enter and exit
•Prices are more affordable and stable in general
•There are low cases of consumer exploitation
Advantages •Little to no advertisement expenses
•Self-regulating for the most part with little intervention
from the government
 •It hardly exists due to its rigid market structure
•There are quite a number of requirements such as permits
and licenses needed to operate legally which can be
difficult for small-time entrepreneurs
Disadvantages •Not all consumers and producers are fully knowledgeable
on the market condition, particularly in developing
countries
•Producers sometimes tend to overproduce
Profit Maximination

No seller is dominant enough to dictate the price of goods and

services, hence they are price-takers. It is the interplay of the
demand and supply that determines the prices. Every seller
who joins the market knows and should know it and live by it.
Producers can maximize profit when its marginal cost of
production is equal to its marginal revenue, meaning, the unit
price of such product must be at least equal to the cost of every
unit produced.
 MONOPOLISTIC
COMPETITION
A ma rke t ma de up of man y fi rms t ha t se ll s im il ar b ut
di fferent i at ed pro duc ts .
 MONOPOLISTIC
COMPETITION
Monopolistic competition has all the ingredients of pure
competition except the products sold are not identical.
Advertisements, geographical location, brand names, quality of products and
services and product presentations are the most common forms of differentiation.
One of the factors of sales are the suki or loyal customers.
MONOPOLISTIC
COMPETITION
ADVANTAGES OF MONOPOLISTIC
COMPETITION

•Producers innovate their products to differentiate from other

competitors
•Good advertisement and endorsement is the key
•Retail stores makes products more accessible to consumers
 DISADVANTAGES OF
MONOPOLISTIC
COMPETITION
• Known for heavy advertisements. Most of the time, more
advertisements, the higher the price
•Advertisements can deceive consumers that their products are necessary
 PROFIT MAXIMINATION
They maximize profit just the same way other market structures.
Firms that sell good and quality products enjoy market advantage
over their competitors, earn more profit and wield greater
monopoly pow er.
 OLIGOPOLY
A m a rke t m ade up of only a s ma ll numbe r of produc e rs
or c ompe titor s.
 Th ere a re n o e xa c t nu mb er o f p ro d u c e rs in an o l ig o p o l y a s l o n g as the ma rk et is sma l l
e nou gh tha t firms c a n mo n it o r e ac h o th e r ’s e co n o mic ac t ivi tie s.

A price war sometimes occurs between producers but are not exactly profitable. This is the reason why
producers rather collude on the prices to maximize profit and compete on other aspects such as quality
and efficiency.
ADVANTAGES OF OLIGOPOLY

•Produc e rs inno vate the ir produc ts to diffe r enti a te from

othe r c ompe titors
•Good advertisement is a must to educate consumers on their
respective products
Ideal for medium-sized markets.
 DISADVANTAGES OF
OLIGOPOLY
•Pric e c ollus ion
- Tacit price collusion
- Explicit price collusion
•Susceptible to cartel formation
 PROFIT MAXIMINATION
J ust like in pure c ompe tition, pr oduc e rs s hould be a ble
to ma ximiz e t heir prof it w h e n the un it pr ice of suc h
produ ct is a t lea s t e qu al to the c os t of e ve ry un it
produ ce d.
 MONOPOLY
A m ar ke t where t he re i s onl y one produce r.
 A s the n am e im p lies, a m on op o listic ma rk et is d o m in ated b y o nl y o n e p r o du c er, a
mo n o p o list. T he mo n o p o list is th e b oss in th e in d u stry, o r so m etim es is th e in d u stry
itself .

To perpetuate itself in the market, monopolists tend to resort to cutthroat competition which occurs
when a producer lowers the price of its product to a point that other competitors cannot match.
TYPES OF MONOPOLY
• Nat ural Mono pol y – dev el ops when i s i t most pr acti cal t o h ave onl y
one fi r m operat i ng i n t he mark et

•Geographical Monopoly – exists only if there is only one firm operating in an

area such as gasoline stations, internet cafes, convenience stores, etc. The thing
about this type of monopoly is that other firms can start their operations in the
same area if they find the place profitable for business.
NATURAL MONOPOLY
GEOGRAPHICAL
MONOPOLY
TYPES OF MONOPOLY
• Te chnologi ca l M onopol y – e njoyed by f i r ms tha t dom inat e t he
m ar ket bec aus e of their sup er ior tec hnolo gy w hich othe r firm s do not
have . I t als o e xis ts w hen t he gove r nme nt gr ants a f ir m the exc lusi ve
ri ghts to m anuf a ct ur e and s ell a pr oduc t.

•Government Monopoly – run exclusively by a state-owned firm.

TECHNOLOGICAL
MONOPOLY
GOVERNMENT
MONOPOLY
 ADVANTAGES OF
MONOPOLY
• P rice s c an b e stab le f o r th e m o st pa rt
•Monopolists are given exclusive rights to produce products and services which is
advantageous to monopolists themselves
•Easy to take over in abnormal times (advantageous for the government)
 DISADVANTAGES OF
MONOPOLY
• M o n o p oli sts ca n ex p lo it th e m ark e t an d dic tate th e p r ice o f pr o d uc ts an d
ser vi ces
•Can create resource immobility. For example, when monopolies close, there is a
sudden surplus of unemployed workforce.
•Stagnation. When there are no other competitors, monopolists usually do not have
reasons to innovate.
 PROFIT MAXIMINATION
Mo n o p o li s t s m a xi m iz e p ro fit in a sim ila r wa y o th e r ty pe s of
m ar k e t s t r u c t u r e s d o . T h e o n ly d iffe re n c e is th at m o n o p olis ts
a re t he p r ic e - m a k e r.