competitive and concentrated markets: importance of market structure on producers and consumers

Market Structure

• How different industries or businesses are classified and differentiated based on the degree and nature of competition for goods and services - between producers, and between producers and customers

• Can also describe the characteristics of market, determining appropriateness of different marketing activities

Ease of Entry

• How easy it is to set up a new business in a specified industry

Price Maker

• The ability a producer has to dictate how much to charge for goods / services they produce

Price Taker

• The inability of a producer to make price changes for the goods / services they supply since the market dictates the price

Market Power

• Similar to “price maker” - the ability to make decisions and price changes that have negligible / no impact on sales.

What are the 3 defining characteristics of market structure?

1. Number of firms in the market

2. Ease of entry or exit from the market

3. Degree of product differentiation

Perfect Competition

Many large firms

• Price takers

• Must adhere to market price

Identical products / services

• Standardized

• Identical + generic

Easy entry

• Easy entry into the market

• Demand curve horizontal / price elastic

Agricultural markets, foreign exchange and local markets

Monopoly

Only one firm

• Entry by others is virtually impossible

• Price maker (able to influence price)

• Defined in the UK as 25% of the market share

No close substitutes

• Uncompetitive

• Goods / services cannot be purchased elsewhere

• Little need for marketing

Difficult entry

• High set up costs for competitors

• Demand curve downward sloping

Seven Trent, Royal Mail, National Rail

Monopolistic Competition

Large number of firms

• Price maker (has influence over price)

• Each firm is almost a mini-monopoly

Differentiated products / services

• Products / services offered have distinguished features

• Large amount of marketing

Easy entry + exit

• Low entry cost into the market

• Demand curve downward sloping ‘

Coca-cola

Oligopoly

Limited number of firms

• 2-8 firms

• Each firm has the ability to effect or influence the market price

Different + similar products

• Substitutes are usually available but sometimes products / services can also be generic

• Collusion can be a problem for others

Entry + exit quite difficult

• Entry can be costly

• Demand curve downward sloping

What