Learning Kit #7 - W1Q4 - Different Market Structure

DIFFERENT MARKET STRUCTURE

Overview

• Understanding various market structures is critical for analyzing economic dynamics.

• Key market structures: Monopoly, Perfect Competition, Monopolistic Competition, Oligopoly.

OBJECTIVES

• Differentiate market structures based on:

  • Number of Sellers: How many sellers are present in the market?

  • Types of Products: Are the products homogeneous or differentiated?

  • Entry/Exit to Market: What are the barriers to entry and exit?

  • Pricing Power: Who has the power to influence prices?

  • Others: Additional characteristics affecting market structure.

• Identify market structure classification for goods or services.

• Interpret data and assess market structure of different goods or services.

LET'S GET INVOLVED

• Picture Analysis: Engage with visual materials to describe market concepts.

• Example: Analyzing images related to MERALCO or Panalo Express to derive insights.

LET'S EXPLORE

• Directions: Unscramble terms related to market structures and detail ideas about those terms.

LET'S CLARIFY THINGS

• Understanding how market structures vary is essential for economic analysis.

MARKET STRUCTURES CLASSIFICATION

Competition Degree

• Degree of competition is influenced by the number of competing firms.

• More firms = Greater competition and bargaining power for consumers.

• Bargaining Power of Consumers: High power allows consumer price-setting; low power means suppliers dictate prices.

Barriers to Entry

• Entry barriers determine market accessibility for new firms.

  • High Entry Barriers: Significant capital required (e.g., manufacturing).

  • Economies of Scale: Large production lowers per-unit costs.

  • Resource exclusivity as an entry barrier.

MARKET MODELS DEFINED

Perfect Competition

• Many independent sellers offering identical goods.

• Sellers compete for profit; they are price takers (market set prices).

Monopoly

• A single firm controls the market; no close substitutes are available.

• Dependence on substitution ease to determine monopoly strength.

Monopolistic Competition

• Many sellers, similar but differentiated products, allowing for some price control.

Oligopoly

• Market dominated by a few firms.

• Barriers to entry are high, limiting competition and allowing for collusion.

CHARACTERISTICS OF MARKET MODELS

Perfect Competition

• Large number of sellers; products are homogeneous (e.g., farm goods).

• Price change requires collective market shift; no single seller can alter prices.

• Entry/Exit Flexibility: Easy for firms to enter or leave the market (low entry barriers).

Monopoly

• One seller dominates the market with unique products.

• Sellers can control output to manipulate prices.

• Limited promotion as consumer choice is minimal due to lack of alternatives.

Monopolistic Competition

• Many active sellers, diverse product offerings; differentiation is key.

• Limited Price Control: Sellers can slightly manipulate their prices due to differentiation.

• Entry Barriers: Moderate challenges for new firms; need significant capital and superior products.

• Non-price competition: Marketing strategies to attract consumers.

Oligopoly

• A few firms possess significant market share.

• Products can be homogeneous or differentiated.

• Market power allows price leadership and potential collusion among firms.

• High entry barriers with substantial capital investment required.

DETERMINANTS OF MARKET STRUCTURE

Government Laws and Policies

• Government regulations impact competition levels (e.g., utilities like water and electricity).

• Some industries experience limited competition for consumer protection.

Technology

• Technological advancements can disrupt monopolies, introducing competition.

• Example: Transition from abaca to plastics in rope production.

Business Policies and Practices

• New entrants face challenges from established firms; industry consolidation can stifle competition.

Economic Freedom

• Firms thrive in conditions where economic freedom allows for competition.

• Market dynamics can lead to few dominant firms determining pricing and production.

COMPARING MARKET STRUCTURE