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Meaning of Market

In common language, the term market refers to a place, where goods are purchases and sold, such as Super Bazaar, Connaught Place. The term market should not ignore the demand and supply of the commodities. It may be local, national and international such as Foreign exchange market.

Markets on the basis of Competition

According to modern economists, there can be markets Perfect Competition Zero Competition i.e Monopoly Imperfect Competition

Market Structure
Market Structure means layout of the market from which firm purchases its inputs and where it sells its output. The classification of market structures is based upon the following elements : The number of firms producing the product The nature of product produced by the firms Price elasticity of the demand of the product produced by the firm

Forms of market structure

Number of firms

Nature of Product

Status of entry into industry

Price elasticity of demand

Perfect Competition

Large number of sellers One

Homogeneo us Product

Free entry and exit



No close substitute

Strong barriers to entry Free entry and exit

Very small

Monopolistic Fairly large competition number of firms

Close substitute products


Meaning of Perfect competition

Perfect Competition is a market situation in which there is large number of buyers and sellers of a homogeneous product, and the price of such a product is determined by the market forces of demand and supply. IN other words, in perfect competition the golden principle of one market, one price operates completely and continuously.

In the words of Bilas, the perfect competition is characterized by the presence of many firms. They all sell same product. The seller is a pricetaker.

Features of perfect competition

Large number of sellers and buyers Homogeneous product Free entry and exit of firms Perfect knowledge of the market Lack of Selling Costs Same Price

Price Determination under Perfect Competition

Price 5 4

Demand for Good x 20 40

Supply of Good x 100 80




Monopolistic Competition
Imperfect competition, is the actual market which we encounter in our daily life. Of all kinds of imperfect competition, the most important one is monopolistic competition. Monopolistic Competition may be described as a combination of both perfect competition and monopoly or blending of the two. It refers to that market situation in which large number of producers produce goods which are close substitutes of each other.

According to J.S.Bain, Monopolistic Competition is found in the industry where there is large number of small sellers, selling differentiated but close substitute products.

Features of Monopolistic Competition :

Large number of firms Product Differentiation Free entry and exit of firms Selling Costs Sales Techniques

What is Monopoly ?
The word Monopoly is composed of two words : (i) Mono-which means single (ii) Poly- which means seller Thus, monopoly is a market situation in which there is a single seller of a good with no close substitutes.

Features or Necessary conditions for the existence of Monopoly

One Seller and Large number of Buyers No close substitutes Restriction on the Entry of New firms Selling Costs

Price Discrimination or Discriminating Monopoly

Sometimes a monopolist charges different prices of the same product from different buyers. The price policy of the monopolist is called price discrimination. The monopolist practising is called discriminating monopoly.

In the words of J.S.Bain, Price Discrimination refers strictly to the practice by a seller of charging of different prices from different buyers for the same goods.

Kinds of Price Discrimination:

Personal Price discrimination Price Discrimination according to Use Price Discrimination according to Time Geographical Price Discrimination Price Discrimination is also related to Age, Gender, Status of the Customers

Conditions of Price Discrimination

Existence of Monopoly Difference in the elasticity of demand Goods made to order Legal Sanction Behaviour of the consumers

In order to sell their products, firms under monopolistic competition have to spend a lot on advertisement and publicity. In Economics, the total amount of money spent on advertisement and publicity for pushing the sale of the product is called selling cost.

Selling costs refer to those costs which are incurred to increase the sale of the product e.g. expenditure on advertisement, publicity, commission to retailers, gifts and concessions to customers etc.

Definition Selling costs include all expenses incurred to increase the demand for the goods.

Selling costs are based on two assumptions : Buyers taste and demand can be changed Buyers do not have full knowledge about the various types of product.

Shape of the Selling Costs

According to Chamberlin, selling costs curves are also U-shaped. Initially it falls and later it rises. It means, in the beginning proportionate increase in sales is more than the increase in selling costs. But after a point, proportionate increase in sales is less than increase in selling costs. It implies that upto a point selling cost go on diminishing but after a point the same tend to increase.

The term Oligopoly is derived from two Greek words. Oligoi means few and Pollen means to sell. Oligopoly is an imperfect market where there are a few sellers in the market, producing either identical products or producing products which are close but not perfect substitutes of each other. For Example, Steel, tyres, automobiles etc.

Main Features of Oligopoly :

A few sellers Lack of Uniformity Homogeneous of Differentiated Product Existence of Price Rigidity Existence of Non-Profit Motive

CLASSIFICATION OF OLIGOPOLY The Oligopoly may be classified on the following basis : On the basis of Product Differentiation Perfect or Imperfect Oligopoly On the basis of Entry of Firms Open or Closed Oligopoly