COMPETITION ENVIRONMENT

Four (4) Market Structures

- is described by the number of buyers and sellers operating in a market

- degree of collusion or competition between them

a. Perfect Competition

- consumers enjoy the 2 fold benefits: abundance of goods and reasonably

low prices

Characteristics of a perfect competitive market

1. There must be many buyers and sellers of any given product

Reason:
a. The plurality of buyers and sellers can prevent collusion with one another
b. No one can influence the price

2. Goods being bought or sold are identical or indistinguishable (homogeneous) from

one another

Reason: Same production /cost and pricing structures

3. Full knowledge among buyers and sellers about the market condition

Reason: No one is ignorant of opportunities to strike a better bargain

4. There is freedom for both buyers and sellers to enter or leave the market

Reason: There must be no barriers to entry or exit guaranteeing a long run

equilibrium status

b. Imperfect Competition

- firms seek to limit the workings of perfectly competitive markets

- firms would like to be in the position of a monopolist to be able to control price
and output
- firms create strong brands in order to build a stable, long-term demand at
profitable margins
 - brands provide buyers with a sense of security and consistency thus forming a
relationship with them

c. Oligopoly

- Greek word “oli” meaning “few”

- refers to a market structure in which there are only a few firms competing within
a given industry
- firms must be producing a homogeneous product
- require massive investments and advance technology

Example:
Petroleum refining (Big 3: Shell, Petron and Caltex)
Flour Industries (Republic Flour Mills / Concepcions, General Milling Co. / Uytengsus and
Purefoods Flour / San Miguel Corp.)

d. Monopoly

- Greek word “mono” meaning “one”

- a single producer of a particular good or service
- one person or organization has complete control over the resources of a market

Example:
Former President Marcos in the late 70’s established monopolies in sugar (National Sugar
Trading Corp) coconut (United Coconut Oil Milling, Inc.) and grains (National Food
Administration)
Meralco / Lopez (electric power supplier for Metro Manila)

Government Policies

Deregulation (in order for more competitors to enter the market) in certain industries during Ramos
era:

a. Telecommunications (entry of Globe / Ayalas and Sun / PLDT)

b. Petroleum (allowing oil firms to set own pump prices without subsidy from government
via the Energy Regulatory Board)

Privatization during Ramos era: Selling NAWASA to Lopez’s (Maynilad) and Ayalas (Manila
Water)

Source : The Business Environment, Palmer, 4th Edition 2002