Market Structures in Term of Sellers, Products and Pricing Power 2.

Monopoly
The monopoly market structure is the opposite of the perfect competition structure . A
Types of Market Structure monopoly is the sole supplier of a product with no close substitutes. The
1. Perfect Competition term monopoly comes from a Greek word meaning “one seller.” A monopolist has
Features of Prefect Competition more market power
a) There are many buyers and sellersso many that each buys or sells only a tiny than does a business in another market structure. Market power is the ability of a firm
fraction of the total market output. This assumption ensures that no to raise its price without losing all its sales to rivals. A perfect competition has no
individual buyer or seller can influence the price. market power.
b) Firms produce a standardized product. The is identical across suppliers,
such as a sack of wheat, a sack of corn, rice or agricultural products. Barriers to Entry
Because all suppliers offer an identical product, no buyer is willing to pay A monopolized market has high barriers to entry, which are restrictions on the entry of
more for one particular suppliers’ product. new firms into an industry. There are three types of entry barriers:
c) Buyers are fully informed about the price, quality, and availability of a. legal restrictions,
products, and sellers are fully informed about the availability of all b. economies of scale, and
resources and technology. c. control of an essential resource
d) Firm can easily enter or leave the industry. There are no obstacles
preventing new firms from entering profitable markets or preventing Legal Restrictions
existing firms from leaving unprofitable markets. Governments can prevent new firms from entering a market by making entry illegal.
Patents, licenses, and other legal restrictions imposed by the government provide some
If these conditions exist in a market, individual buyers and sellers have no producers with legal protection against competition. Governments in some cities
control over the price. Price is determined by market demand and market supply. Once confer monopoly rights to collect garbage, offer bus and taxi service and supply other
the market establishes the price, each firm is free to supply whatever quantity services ranging from electricity to cable TV. The government itself may become a
maximizes its profit or minimizes its loss. A perfectly competitive firm is so small monopolist by supplying the product and outlawing competition. For example, the
relative to the size of the market that the firm’s quantity decision has no effect on the Philippine Postal Corporation has the exclusive right to deliver first-class mail.
market price.
Economies of Sale
Examples of Perfectly Competitive Markets Economies of scale refer to the cost advantages that a company can achieve
In the perfectly competitive market for coconuts, for example, an individual when it produces goods or services on a large scale. In other words, as the production
supplier is a coconut farm. In the world market for coconuts, there are thousands of scale increases, the cost per unit of production decreases, which results in lower
coconut farms, one supplier is a tiny fraction of market output. For example, the overall costs for the company.
Philippine exports more than php 1B worth of coconut products to the United States,
But no single coconut farmer can influence the market price of coconuts. Any farmer A typical example of economies of scale can be seen in the manufacturing
is free to supply any amount he or she wants to supply at the market price. industry. For instance, a car manufacturer can produce cars at a lower cost per unit
when it produces a large number of cars because it can take advantage of bulk
Characteristics purchasing of raw materials, negotiate better deals with suppliers, and benefit from
1. There are many buyers and sellers in the market. specialized equipment and production processes that become more efficient as the
2. Each company makes a similar product. Products are identical. production scale increases. This can result in lower costs per car, which can allow the
3. Buyers and sellers have access to perfect information about price. manufacturer to offer competitive pricing, increase profits, or invest in new
4. There are no transaction costs. technologies or products.
5. There are no barriers to entry into or exit from the market
Control of Essential Resources examples
∙ Diamond mining has control of 80 percent of the world’s diamond supply and has
the ability to limit supply to keep prices high.
∙ China is a monopoly supplier of pandas to the world’s zoos. The National Zoo in
Washington, D.C., for example, rent a pair of pandas from China for $1 million
 per year. As a way of controlling the panda supply, China stipulates that any 2. Clothing stores
offspring from the Washington pair becomes China’s property. ∙ such as Zara, H&M, and Forever 21, which sell similar types of clothing but with
∙ The privately owned National Grid Corporation of the Philippines (NGCP) is different styles, designs, and marketing strategies.
exclusively in charge of operating, maintaining, and developing the Philippines 3. Soft drinks
interconnected power-grid system that transmits electricity from its source to its ∙ such as CocaCola, Pepsi, and Dr. Pepper, which have similar taste but different
end users. branding and advertising campaigns.
4. Coffee shops
Examples ∙ such as Starbucks, Dunkin' Donuts, and Tim Hortons, which offer similar types
Utility companies of coffee and baked goods but with different store designs and atmospheres.
∙ such as electric or gas companies that are regulated by the government and have a 5. Hair salons
monopoly in the area they serve. ∙ such as Supercuts, Great Clips, and Fantastic Sams, which offer similar haircuts
Patented drugs and styling services but with different pricing, locations, and promotions.
∙ such as brand-name drugs that have exclusive rights to production and
distribution, such as Viagra or Lipitor. 4. Oligopoly
Cable companies An oligopoly is a market structure in which a small number of large firms dominate
∙ such as Comcast or Time Warner, which often have exclusive rights to provide the market and control the supply of goods or services. In an oligopoly, each firm is
cable television and internet services in certain areas. aware of the actions of the others and may respond to changes in the market based on
Government services their actions.
∙ such as the US Postal Service, which has a monopoly on delivering first-class
mail. Examples of companies or products in Oligopoly
DeBeers Diamond Company Examples of oligopolies include the airline industry, where a small number of
∙ which has a monopoly on the diamond industry. airlines control the majority of air traffic; the telecommunications industry, where a
few large companies control the majority of the market; and the soft drink industry,
In each of the examples, there is only one producer of a product or service in the where two large companies dominate the market.There are two types of oligopoly: a
market, and there are no close substitutes available to consumers. The producer has collusive oligopoly and a non-collusive oligopoly. In a collusive oligopoly, firms
complete control over the price and supply of the product, and there is no competition collude to restrict competition, which can result in higher prices and profits for the
in the market. firms. In a noncollusive oligopoly, firms do not collude but are still aware of each
other's actions and may compete aggressively to maintain or increase their market
3. Monopolistic Competition share.
Monopolistic competition is a market structure in which many companies sell
products that are similar but not identical. In monopolistic competition, companies
have some control over the price of their products, but there is still some competition
in the market.

Characteristics
∙ The presence of many companies
∙ Each company produces similar but differentiated products
∙ Companies are not price takers
∙ Free entry and exit in the industry
∙ Companies compete based on price, product quality, and how the product is
marketed

Examples
1. Fast food restaurants
∙ such as McDonald's, Burger King, and Wendy's, which sell similar products but
have slightly different menus and branding.