[ECON 11] Market Structures

large number of firms, products are homogenous, freedom of entry and exit in the industry, firms have no control over price change, producers supply a limited proportion compared to total industry output, and consumers and producers have perfect understanding of the market

Characteristics of a perfect competition

imperfect competition

This prevails in an industry whenever individual sellers have some measure of control over price of their output and may or may not have product differentiation/variation.

monopoly, oligopoly, and monopolistic competition

These are the three different market structures.

This occurs when there is a large number of sellers, the products sold by different firms are not identical, firms are price makers, firms have to engage in advertising, and entry and exit from the industry is relatively easy.

physical product, marketing, human capital, and distribution

These are the four different areas on which a product may differ on:

physical production

Differentiation: firms use size, design, color, shape, performance, and features to make their products different.

marketing

Differentiation: firms try to differentiate their product by distinctive packaging and other promotional techniques.

human capital

Differentiation: firm creates differences through the skill of its employees, the level of training received, distinctive uniforms, and so on.

restaurant, hotels and pubs, general specialist retailing, and consumer services

These are the common industries where differentiation is possible.

small firms

The existence of monopolistic competition partly explains the survival of _____ in modern economies.

oligopoly

This occurs when there is a large number of firms in the industry but the industry is dominated by a small number of very large producers.

goods could be homogenous or highly differentiated, dependent, non-price competition may be prevalent, difficult to enter, and branding can cause advantage

These are the key characteristics of oligopoly.

economies of large scale production, ownership or control of a key scarce resource, high set-up costs, and high R & D costs

These are the natural entry barriers

predatory pricing, limit pricing, superior knowledge, predatory acquisition, advertising, strong brand, loyalty schemes, exclusive contracts, patents, and licenses, and vertical integration

These are the artificial entry barriers

monopsony

The opposite of monopoly and means that only one buyer deals with many sellers, and as such, control prices and trade.

Backward Linkages

the control of production of inputs

Forward Linkages

the control of processing of input

forward integration

Involves gaining ownership or increased control over distributors or retailers.

backward integration

Strategy of seeking ownership or increased control of a firm’s suppliers.

horizontal integration

Strategy of seeking ownership of or increased control over a firm’s competitors.

intensive strategies

Market penetration, market development, and product development are sometimes referred to as _____.

market penetration

Strategy that seeks to increase market share for present products or services in present markets through greater marketing efforts.

market development

Strategy that involves introducing present products or services into new geographic areas.

product development

Strategy that seeks increased sales by improving or modifying present products or services and entails large research and development expenditures.