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Presentation on

Market Structure

Prepared by:

PROSEN DAS.SOMEN CHATTERJEE.UTTAM PATRA.

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What is MarketStructure-

Identifies how a market is made up of in terms of-No. of firms in the industry.

Freedom of entry & exit.Degree of Monopoly power each firms has.Extent of barriers to entry.

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y Pricing

y Supply

y Barriers to Entry

y Efficiency

y Competition

Type of market structure influences how aType of market structure influences how afirm behaves:firm behaves:

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Degree of competition in the industry

High levels of competition Perfect

competition

Limited competition Monopoly

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Free entry and exit to industry

Homogenous product identical so no

consumer preference

Large number of buyers and sellers no

individual seller can influence price

Sellers are price takers have to accept the

market price

Perfect information available to buyers and

sellers

Perfect CompetitionPerfect Competition

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y Financial markets stock exchange, currency

markets, bond markets

y Agriculture

Examples of perfect competitionExamples of perfect competition

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High degree of competition helps allocate

resources to most efficient use

Price = marginal costs Normal profit made in the long run

Firms operate at maximum efficiency

Consumers benefit

Advantages of Perfect CompetitionAdvantages of Perfect Competition

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Industry dominated by small number of large firmsMany firms may make up the industry High barriers to entry Products could be highly differentiated branding or

homogenous Nonprice competition Price stability within the market - kinked demand curve? Potential for collusion? Abnormal profits High degree of interdependence between firms

OligopolyOligopoly

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Supermarkets

Banking industry

ChemicalsOil

Medicinal drugs

Broadcasting

Examples of oligopolistic structuresExamples of oligopolistic structures

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Pure monopoly industry is the firm!

Actual monopoly where firm has >25% market

share

Natural Monopoly high fixed costs gas,

electricity, water, telecommunications, rail

MonopolyMonopoly

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High barriers to entry

Firm controls price OR output/supply

Abnormal profits in long run

Possibility of price discriminationConsumer choice limited

Prices in excess of MC

MonopolyMonopoly

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May be appropriate if natural monopoly

Encourages R&DEncourages innovation

Development of some products not likely withoutsome guarantee of monopoly in production

Economies of scale can be gained consumer maybenefit

Advantages of monopolyAdvantages of monopoly

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Exploitation of consumer higher pricesPotential for supply to be limited - less choice

Potential for inefficiency

DisadvantagesDisadvantages

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Price

Quantity

D = Inelastic

Kinked D Curve

5

D = elastic

Kinked Demand Curve

100

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THANK YOU