Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
•DefineMarket?
•Market structure
• •is the interconnected characteristics of a market, such as the number and relative
strength of buyers, and sellers, degree of freedom in determining the price, level and forms of
competition, extent of product differentiation and ease of entry into and exit from the market
•Profit levels
1
Different Market structures are
Perfect Competition:
• A market situation in which there is large number of buyers and sellers of a homogeneous
products and neither a seller nor a buyer has any control on the price of the product.
• According to Prof. Baumol and Prof. Blinder “Perfect competition occurs in an industry when
that industry is made up of many small firms producing homogeneous products ,when
information is perfect ,and when there is no impediment to the entry or exit of firms.’’
Characteristics
2. Homogeneous Product
6. No Government interference
Monopolistic Competition
Large number of firms that produce differentiated products which are close substitutes for each
other.
In other words, large sellers selling the products that are similar, but not identical and compete
with each other on other factors besides price.
2
Characteristics
Oligopoly
• A market structure in which a few firms dominate. When a market is shared between a
few firms, it is said to be highly concentrated. The Oligopoly Market characterized by
few sellers, selling the homogeneous or differentiated products.
• In other words, the Oligopoly market structure lies between the pure monopoly and
monopolistic competition, where few sellers dominate the market and have control over
the price of the product.
Characteristics
Duopoly
• A duopoly is a form of oligopoly occurring when two companies control all or most of
the market for a product or service.
Monopoly
• A market structure characterized by a single seller, selling a unique product in the
market.
• In a monopoly market, the seller faces no competition, as he is the sole seller of goods
with no close substitute
Characteristics
3
Monopsony
• A market structure in which only one buyer interacts with many would-be sellers of a
particular product. A monopsony is a market with one buyer, many sellers, and no close
substitute for the good in question.
Duopsony
• An economic condition, similar to a duopoly, in which there are only two large buyers
for a specific product or service.
Market Characteristics
Structure Homogeneous or Price Taker or Price Draw the demand
Differentiated Product? Searcher/Maker? curve facing the firm
Perfect Homogeneous product, Price Taker - the firm Perfectly elastic
Competition all goods are perfect chooses quantity but takes
substitutes for price from the market
consumers
Monopolistic Differentiated products, Price Searcher Very elastic, but not
Competition but close substitutes for perfectly elastic because
consumers so their close substitutes exist
demand curves are
elastic
Oligopoly Products can be either Price Searcher Inelastic, to be an
differentiated or non- effective oligopoly
differentiated
Monopoly A single, homogeneous Price Maker Inelastic, to be an
product with no close effective monopoly
substitutes
4
Firm and Market structure
Constrains and Conditions of the firm based on the following
• Resources
• Technology
• Production function
• Degree of competitiveness
• AC=AR-Normal Profit
• AC>AR-Loss
• Where firm is price taker i.e the market price , for eg. Rs.10
Q Price TR AR MR
1 10 10 10 10
2 10 20 10 10
3 10 30 10 10
4 10 40 10 10
5 10 50 10 10
6 10 60 10 10
7 10 70 10 10
5
Imperfect competition
Q Price TR AR MR
1 10 10 10 10
2 9 18 9 8
3 8 24 8 6
4 7 28 7 4
5 6 30 6 2
6 5 30 5 0
7 4 28 4 -2
6
Shut down point
• Perfect competition
• Short run phenomenon
7
Price and Output Determination under Monopoly
• AC=AR-Normal Profit
• AC>AR-Loss
• AC<AR-Super Normal Profit
• Since no competition, continue making positive economic profits in the short run
and long‐run.
8
Price and Output Determination under Monopolistic Competition
Short run
In Longrun
• At profit maximisation,
• MC = MR, and output is Q and price P.
9
Price and Output Determination under Oligopoly
• Sweezy Kinked Demand curve
10
Price Leadership Model:
• Price leadership is when a firm that is the leader in its sector determines the price
of goods or services
• Price leadership is an informal position of a firm in an oligopolistic selling to lead
other firm in pricing. This leadership may emerge spontaneous due to technical
reason or agreement between the firm to assign leadership
Assumptions
• Small no of firms
• Entry restricted
• Homogeneous product
• Demand is inelastic
• Firm have similar cost curves
• All firm face identical revenue curves and demand i.e, AR=D &MR
• The low cost firm find more profitable to fix the price and sell quantity
• The low cost firm sells output at lo cost and make more profitable than the other
firms
• The price leader is usually the largest or the dominant firm in the industry or it
could also be the lowest cost firm recognized as a true interpreter of the changes
in industry demand and supply conditions warranting a price change
• The barometric firm suppose to have the perfect knowledge about the market
conditions
• Price fixed by the barometric firm is also fixed as the equilibrium price in the
,market with demand =supply
11
Economic Surplus
• Producers Surplus is an economic measure of the difference between the amount
a producer of a good receives and the minimum amount the producer is willing
to accept for the good
• Consumer surplus is the difference between the total amount that consumers are
willing and able to pay for a good or service and the total amount that they
actually do pay.
12