12712_Intro to Market Structures

8/6/2019 12712_Intro to Market Structures

1/17

Selling Environment or MarketStructure

8/6/2019 12712_Intro to Market Structures

2/17

Introduction

Market structure is the focus real-worldcompetition.

Market structure refers to the physicalcharacteristics of the market within whichfirms interact.

8/6/2019 12712_Intro to Market Structures

3/17

Introduction

Market structure involves the number of firms in the market and the barriers to

entry.

8/6/2019 12712_Intro to Market Structures

4/17

Market StructureThe selling environment in which a firmproduces and sells its product is called amarket structure .

Defined by three characteristics: The number of firms in the market The ease of entry and exit of firms The degree of product differentiation

8/6/2019 12712_Intro to Market Structures

5/17

Introduction

Perfect competition, with an infinitenumber of firms, and monopoly, with a

single firm, are polar opposites.Monopolistic competition and oligopoly liebetween these two extremes.

8/6/2019 12712_Intro to Market Structures

6/17

Perfect CompetitionP erfect Competition is a market structurecharacterized by: Many large firms, so large that no one firm has the

ability to affect the market. These firms are price

takers they have to go along with the market price. Identical products, the products are identical,generic products.

Easy entry into the industry. The demand curve is perceived by each firm to be

horizontal.

8/6/2019 12712_Intro to Market Structures

7/17

Perfect Competition

8/6/2019 12712_Intro to Market Structures

8/17

MonopolyMonopoly is a market structure in which thereis just one firm , and entry by other firms is not possible . There are no close substitutes. The firm has the power to set the price, but still sets

an optimal price to maximize profit. If the monopolistsets the price too high, revenue will decline.The firm is a price maker .

The firms demand curve is the market demand curve,and it is downward sloping.

8/6/2019 12712_Intro to Market Structures

9/17

Monopoly

8/6/2019 12712_Intro to Market Structures

10/17

Introduction

Monopolistic competition is a marketstructure in which there are many firmsselling differentiated products.

There are few barriers to entry.

8/6/2019 12712_Intro to Market Structures

11/17

8/6/2019 12712_Intro to Market Structures

12/17

Monopolistic Competition

8/6/2019 12712_Intro to Market Structures

13/17

Introduction

O ligopoly is a market structure in whichthere are a few interdependent firms.

There are often significant barriers to entry.

8/6/2019 12712_Intro to Market Structures

14/17

O ligopoloyO ligopoly is characterized by: Few firms more than one, but few enough

so each firm alone can affect the market. Entry is more difficult, but can occur . The firms are interdependent each is

affected by what others do. The demand curve is downward sloping for

each firm.

8/6/2019 12712_Intro to Market Structures

15/17

Demand for Various Markets

8/6/2019 12712_Intro to Market Structures

16/17

Problems Determining Market

StructureDefining a market has problems: What is an industry and what is its geographic

market -- local, national, or international? What products are to be included in the

definition of an industry?

8/6/2019 12712_Intro to Market Structures

17/17

Classifying Industries

O ne of the ways in which economistsclassify markets is by cross-priceelasticities. C ross-price elasticity measures the

responsiveness of the change in demand for a good to change in the price of a related

good.