Summary of Market Structures and Competition

  • Definition of a Market:

    • An institution, organization, or location for buyers and sellers to negotiate prices for goods/services.
    • Different markets vary in features affecting operations.

  • Market Structures:

    • Pure/Perfect Competition:

    • Many sellers (hundreds/thousands).

    • Price takers - little to no market power.

    • Homogeneous products, no brand differentiation.

    • Perfect market knowledge, low barriers to entry.

    • Examples: primary products, share market.

    • Monopolistic Competition:

    • Moderate number of sellers (20-40).

    • Similar but differentiated products.

    • Importance of brand differentiation, good knowledge of market.

    • Examples: clothing, restaurants.

    • Oligopoly:

    • Few large sellers (up to 10) controlling the market.

    • Potential for collusion, significant brand importance.

    • High barriers to entry.

    • Examples: supermarkets, banks.

    • Pure/Perfect Monopoly:

    • One seller controls market with no close substitutes.

    • Price maker, significant market power.

    • High barriers to entry.

    • Examples: water companies, electricity.

  • Key Features of Market Structures:

    • Pure Competition:
    • Many sellers, consumer sovereignty, no price setting power.
    • Monopolistic Competition:
    • Product differentiation, some market power for pricing.
    • Oligopoly:
    • Brand names important, potential for collusion.
    • Monopoly:
    • Single firm controls, price maker.

  • Characteristics of Perfect Competition:

    • Strong competition, no market power.
    • Homogeneous products, consumer sovereignty.
    • Low barriers to entry/exit, perfect market knowledge.
    • Rational behavior of businesses and consumers.

  • Effects of High Competition:

    • Efficient resource allocation, lower prices.
    • Improved quality goods/services, higher output.
    • Increased international competitiveness and living standards.

  • Strategies to Increase Profits:

    • The 5 P's of Marketing:
    1. Product
    2. Price
    3. People
    4. Place
    5. Promotion

  • Anti-competitive Behaviour:

    • Price fixing, misuse of market power.
    • Price discrimination, exclusive dealing.
    • Price leadership, predatory pricing.
    • Market zoning, interlocking directorships.
    • Unconscionable conduct.