MARKET STRUCTURES

Market Structure
Market structure is the pattern or form or manner in which its different constituents, i.e. sellers and buyers, are linked together.

The degree of sellers concentration: This is the number and size distribution of firms producing a particular commodity or types of commodities in the market. The degree of buyers concentration: This shows the number and size distribution of buyers for the commodities in the market.
The degree of product differentiation: This shows the difference in the products of different firm in the market. The condition of entry to the market: This shows the relative ease with which new firms can join the category of sellers (i.e. firms) in the market. 2

Perfect Competition

Numerous small buyers and sellers: A large no. of sellers and buyers exist in the market, each one of them individually have no influence upon the market price and quantity of the product

Homogeneity of product: The product is identical of every seller in the market. The buyers are, therefore, indifferent to the sellers and can buy from any one

Freedom of entry and exit: There are no barriers to entry or exit. Sellers and buyers are free to join or leave whenever they want Perfect information: Each buyer and seller has complete information about the market, i.e. about the prices, nature of product, costs, and demand, etc. There is complete absence of advertisement and selling expenses

In a perfectly competitive market, a firm is a price-taker

Demand Curve facing the Firm

Price

Price

Market Demand Curve

Quantity

Q=

Quantity

Monopoly
A firm is said to be under monopoly if the following Conditions are met: Anti-Thesis of competition: Absence of competition in the market creates a situation of monopoly and hence the seller faces no threat of competition. Existence of a single seller: There will be only one seller in the market who exercises single control over the market.

 Price Maker: The monopolist is the price-maker and in taking decisions on price fixation, he is independent. Entry barriers: Entry of other firms is barred somehow. Hence, monopolist will not have direct competitors or direct rivals in the market. Absence of substitutes: There are no close substitutes for his product with a strong cross elasticity of demand. Hence, buyers have no alternatives.

Monopolistic Competition Existence of a large number of firms: The number of firms producing a product will be large. The size of each firm is small. No individual firm can influence the market price. Market is characterized by imperfections: Imperfections may arise due to advertisements, difference in transport cost, Free entry and exit of firms: each firm produces a very close substitute for the existing brands of a product. Thus differentiation provides ample opportunities' for a firm to enter with the group or industry. Product differentiation: firms adopt different techniques to differentiate their products from one another.

 Similar products but not identical: the firm produces commodities which are similar to one another but not identical or homogeneous for E.g.: toothpastes, blades cigarettes, shoes etc.
Non-price competition: in this market there will be a competition among mini monopolists for their products and not and not for the price of the product. Thus there is product competition rather than price competition. More elastic demand curve: product differentiation makes the demand curve of the firm much more elastic. It implies that a slight reduction in the price of one product assuming the price of all other products remaining constant leads to a large increase in the demand for the given product.

Oligopoly
Under oligopoly, we come across a few producers specializing in the production of identical goods or differentiated goods competing with one another.

Interdependence: since the number of firms is very few, any change

in price ,output, product etc., by one firm will have direct effect on the policy of other firms. Indeterminateness of the demand curve: there will be the element of uncertainty. Firms will not be knowing the particular factors which could affect demand. Thus the demand curve for the product will be indeterminate of indefinite as a Kinky Demand Curve Element of monopoly and competition: A firm has some monopoly power over the product it produces but not on the entire market, but monopoly power enjoyed by the firm will be limited by the extent of competition.

 Price rigidity: prices tend to be sticky or rigid under oligopoly. This is because of the fact that if one firm changes its price, other firms may also resort the same technique. Small number of large firms: the numbers of firms in the market are small. But the size of each firm is big. The market share of each firm is sufficiently large to dominate the market,. Existence of Kinked demand curve: A Kinked demand curve is said to occur when there is a sudden change in the slope of the demand curve. It explains price rigidity under oligopoly.

Duopoly: It is a market with two sellers exercising control over the supply of commodities.

Monopsony Monopsony refers to a market with a single buyer who buys the entire amount produced. A Monopsony may be created when all the consumers of commodity are organized together. Suppose there is only one cotton mill in a region. It becomes a monopsonist buyer of raw cotton, while the suppliers of cotton to the mill will be the large number of cotton growers A monopsonist too can adopt price discrimination paying different prices to different sellers according to the elasticity of supply.

Basis Number of Sellers Number of Buyers Nature of product Entry Condition Size of Market Degree of Monopoly power Price

Perfect Competition Large Large Homogeneous Free

Monopolistic Many Large Differentiated Free

Monopoly One Large Unique Strong barriers to entry Large Absolute

Oligopoly Few Large Homogeneous or differentiated Entry barriers

Very small Nil

Small Limited

Large Considerable

Uniform and low

Moderate

Very high

High

Price policy of firm

Price taker

Some control over the price depending on consumers brand loyalty High

Price maker

Considerable control over the prices

Price elasticity of demand for individual firm Nature of decision variables

Infinite

Very low

Low

Only output

Nature and extent of product differentiation and hence the level of selling expenses

Both price and output are within his control

Price, product differentiation & selling expenses depending upon rivals strategies

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