MARKET STRUCTURES IN SRI LANKA

CONTENT
1) 2) 3) 4) PERFECT COMPETITION. MONOPOLY. MONOPOLISTIC COMPETITION. OLIGOPOLY

MARKET STRUCTUER IN SRI LANKA

In Sri Lanka there can be found 4 types of market structures and all the business firms in Sri Lanka can be included into this 4 market structures.

1) Perfect Competition 2) Monopoly 3) Monopolistic Competition 4) Oligopoly

Perfect Competition
There are four major conditions to be completed to from a Perfect Competition Market.

1) Homogeneous Products

All the firms in the industry produce completely substitutes and completely homogeneous products. The buyers always think there is no any kinds of different among these products when producer is different.

E.g. White Eggs Kerosene

2) There should be high amount of buyers and sellers

There should be high amount of buyers and sellers. It shows one buyers or sellers behavior is not affected to the market.

Any buyer cant change the demand and supply of the market. There for changing behavior of any firms or any buyers cant affect the market.

Finish goods of every firm can sell the present market price. Therefore no need to sell their products in bellow market price in further. Since this kind of firm is considered as a price taker.

The present value of the market cant affect the one firm to exist price of the market. Because of one firm cant influence the current market price and units. Although hoe

many units are produced by that particular firms which have to be sold on that existing price and in the market since firms demand curve is perfectly elastic. E.g. Price of 1kg of is Rs.80/= 3) There shouldnt be barriers to enter or exit from the market. Another important point of this perfect competition is free entry and exit. Any person can enterer exit from the market moving the resources.

Laws do not require producers to obtain licenses or pay for the privilege of producing. Other firms cannot keep someone from entering the industry. For the market firms do not require large type of capital investments. Therefore entry and exit of the industry

is not difficult. 4) There should be high amount of information available for both buyers and sellers. There should be high amount of information available for both buyers and sellers. Every industry firm in the market take decisions with observing specially market supply and demand as well as prices, profitability production cost and technology, can be acquire without any cost. If this information cannot be obtain accurately there can be see some difference among market price. E.g. Paddy Cultivation Corn flour Pumpkin Lime

PRICE

Existing Price P1

QUANTITY

The Demand curve of a firm in the perfect competition market.

Perfect Competition Market Structure in Sri Lanka.

According to the market structures in Sri Lanka we can find more industries under the perfect competition. Ex: Vegetables Eggs Fruits If we take vegetable industry in Sri Lanka we can see it is processing under perfect competition. Because the vegetables produced in Nuwaraelliya and vegetables produced in dambulla are same. So we cannot separate vegetables according to the areas or producers and we can find so many buyers and sellers than the other market structures. There for one particular seller or buyer cannot influence to the whole market. The prices of vegetables always depend on the market supply and demand and other important characteristics. Sri Lankan vegetable markets retailers are trying to differentiate quality of vegetables according to the areas. Specially, now there is a new tendency that most of super markets in Sri Lanka trying to differentiate their vegetables among other competitors, using the quality of the vegetables. Sometimes they are using their brand name to sell vegetables as well and other normal retailers also trying to

differentiate their vegetables according to the areas specially that they are using different areas to differentiate vegetables.

And further more about the vegetable industry in Sri Lanka we can say there are no any barriers or limits to enter the market.

But now government trying to introduce some rules on vegetables transportation and anyway government influence to the vegetables prices indirectly through Subsidies for agriculture. Due to government involvement for agriculture as above the prices of vegetables would be affected.

Monopoly Market
When comparing perfect competition market, the monopoly market structure can be seen as radical situation. There are four major conditions can be seen in monopoly market. 1) Product should be unique one. We cant see substitutes products in monopoly market. One can be only purchased producer. So there are no other available producers who produce those particular products. Because of this situation producer becomes monopoly situation. Because of this unique characteristics of the products customer havent a chance to choose products or have to purchase that product from that particular producer. Otherwise customers have to stay without that product. In any market, the industry demand curve is a downward sloping line because of the law of demand. In this monopoly market theres an only one producer, therefore they are the sale producer, and its the industry. So its demand curve is the industrial demand curve. 2) There should be only one firm in the industry. In this monopoly market cant see difference between the firm and the industry. So firm and industry is same unit. Therefore cant be seen the competition can be retained the monopoly in the market. 3) There should be barriers to enter the market. There is lot of barriers to enter the market. They can be natural or artificial.

PRICE

0 QUANTITY Demand curve of a firm in the monopoly market

In addition to that through this monopoly demand curve can be identified, especially that a firm high ability to influence determining the price in the market.

Monopoly Market Structure in Sri Lanka

According to the monopoly market structure in Sri Lanka we can find few examples under this structure but earlier we had so many industries under the monopoly market structure.

Past Monopoly Industries in Sri Lanka

Ceylon Petroleum Cooperation. Sri Lanka telecom. Sri Lanka Transportation Board. Ceylon Leather Products Cooperation.

Present Monopoly Industries in Sri Lanka

Sri Lanka Railway Department. Ceylon Tobacco. Sri Lanka Water Board.

Railway Transportation
If we take railway transportation in Sri Lanka, we can see only one company handling the total railway industry which is Sri Lanka railway department it is a totally government organization. So we can see lot of barriers for new entrance. Actually their main focus is to provide efficient railway transportation to people who are using railway transportation not the profit since this is a government monopoly people can get more benefits than the privet sector. We can clearly get an idea about their main focus through the price and service giving to the people. So from the peoples point of view railway department is always operating their operations according to the peoples needs. Therefore Sri Lankan railway transportation is a governments monopoly. Unless railway department in government control people cannot expect these kinds of benefits.

Monopolistic Competition
Monopolistic competition is firm combination with perfect competition and monopoly. This can be seen as the very common market structure in the world. We can see 4 major conditions in this monopolistic competition. The market structure called monopolistic competition is an industry in which many sellers produce a differentiated product and entry is easy. 1) There should be big amount of sellers. In this kind of market there is no supplier like perfect competition, but there is a considerable amount of suppliers. Share of market is not important, although there are more firms in same industry. Therefore a firm in the industry cant influence rest of the firms in the industry of their average price. 2) There are always trying to differentiate their products. In this situation, producers always are trying to differentiate their product among competitors. E.g. Soap, Toothpaste, Slippers Because of the product differentiation producer become very stronger. Those product differentiations are: 1. Quality of the product 2. Price of the product 3. Marketing

PRICE

QUANTITY

Demand Curve of a firm in the Monopolistic

The Demand Curve of a firm in the monopolistic competition is a downward sloping curve from left. The reason is that curve firms ability determines the price.

Oligopoly Market
There should be two or more but less than handful firms in a monopoly market. There should be 3 main conditions to be formed a oligopoly market. They are: 1) There can be seen artificial or natural barriers when enter the new firm. In the Oligopoly Market there can be seen oligopoly market in many natural and artificial barriers to enter that market as monopoly. Among those barriers which avoid entering the oligopoly take major place are Economies of scale, goodwill and strategies behavior. Economies Scales. A firm which has economies of scales can produce huge amount under the minimum average cost. That companys minimum production level is high amount relatively their optimum their situation the firms who enter newly into this oligopoly have to face difficulties to well establish in the market. Goodwill. Another factor for preventing the firms to enter the market is the goodwill of acquire by existing firms. Its not easy to new enters compete with the firms which have gained the trust of the customer and higher goodwill. Strategies Behavior. The Strategies behaviors are define as the policies conducted by existing firm to separate the potential competitors from the market. As example some of Oligopoly firms high capacity of production. The reason is if there would be a new entrant the firms with the high capacity could easily spread the production to prevent grabbing the market of new entrance. In addition to that another strategic barrier is through that connections with distributers can postpone entering the competitors product into shelves in the market.

2) There should be fewer amounts of competitions firms. 3) Market domination. Since handful amount of firms doing businesses in the market, the market share of a firm is relatively huge. Therefore can be seen interdependent situation among those firms. When the number of firms getting less, their interdependent would increase. One firms principals directly influence to other firms. Every firms always considering about their competitors activities. Actually firms dont like to take decisions alone. As example, If a firm decides to decrease the price, as a result of this demand and profits would decrease. Because of that rest of the competitive firms decrease their price. Therefore initial firms profit will be decreased. These types of market individual decisions are risky. Therefore lots of firms are trying to build up interdependently. For example- Newspapers, commercial Banks, Soaps, Beverages.

PRICE

P1

Q1

QUANTITY

Demand curve of a firm in oligopoly market-( Kinked Demand Curve)

In oligopoly Market, if a firm increases their price above P, other rest of the firms would not increase their prices. The reason is that action would not affect to rest of the firms disadvantageous. Because of this situation the quantity demand of the firms that price increased would be than percentage of price increased. When that firm decreases the price below P, it would affect rest of the other firms. Since rest of the other firms also decrease their price. As the result quantity demand of the firms that price decrease would increase less than percentage of price decrease.

Oligopoly Market in Sri Lanka

When we are considering more about oligopoly market in Sri Lanka, we can see many industries operating under the oligopoly. In this industry we can see two or more but less than handful firms and high competition among those producers. Oligopoly market can be seen as two types in Sri Lanka. 1. More than two firms in industry. 2. Only two firms in industry. (Duopoly) 1. More than two firms in industry:

Confectionary. Sanitary Products. Beverages. ..etc:

2. Only two firms in industry. (Duopoly) L.P. Gas

Petroleum

Furthermore about this oligopoly market we can see more competitive environment than the other industries .They are always trying to differentiate their products specially through the advertising and quality levels. According to the Sri Lankan confectionery industry we can see producers frequently come up with new versions.

Ex: C.B.L. Maliban. Lucky Land. Sun Rich. Edna. So from the new versions they can easily differentiate their products from the market and another important characteristic of this industry is some companies now expand to the international market and dealing with the world.

Duopoly Market.
1. L.P. Gas
When we look at the duopoly market we can find out only two firms in L .P. Gas industry in Sri Lanka. Those are Shell and Laugfs. Both of these companies are totally private companies. But recently Sri Lankan government has took the ownership of shell company. Now government is going to give some benefits to the people, because during the last 10 years gas price being increased number of times and it has become a huge problem for people as well as government. And when we look at the today situation about the gas industry in Sri Lanka we can see both of these companies doing their business in friendly manner and they are always focus on the industry because people have other alternatives for gas. 2. Petroleum

When we consider about the petroleum industry in srilanka we can see only two companies in this industry.

They are:

Ceylon Petroleum Cooperation (CEYPETCO) Indian Oil Company (IOC)

When we consider more about their industry we can see both of these companies doing their business in friendly manner. So we cannot see high competitive environment in this industry. Furthermore about petroleum industry we can see more government impact on this industry mainly because Ceylon petroleum cooperation is totally under government control. Therefore government has put some favorable limits (from the CYPETCO point of view) on this industry like fuel station limits. But CYPETCO trying to go beyond industry limits and maximize their profit, because the government can earn more income.

Group Members.

1. H.M.D. Srimal. 2. K.S. Devage. 3. B.L.M.W. Liyanage. 4. J.M.M. Prathiba. 5. S.A.T.R.C. Suraweera. 6. D.P.N.Y.D. Balasuriya.

ADBM-F-101087 ADBM-F-101016 ADBM-F-101059 ADBM-F-101068 ADBM-F-101088 ADBM-F-101002

ADVANCED DIPLOMA IN BUSINESS MANAGEMENT. NATIONAL INSTITUTE OF BUSINESS MANAGEMENT. SRI LANKA.