market structure in management
DESCRIPTION
Market structure is the collection of factors that ascertain how buyers and sellers interact in a market, how prices change and how different levels of the production and selling processes interact each otherTRANSCRIPT
Market Structure
Ravi Yasas Jayasundara ICT / 10 / 11 / 013
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What is the market structure?
Market structure is the collection of factors that ascertain how buyers and
sellers interact in a market, how prices change and how different levels of
the production and selling processes interact each other. Market structure
identifies how a market is made up in terms of,
Number of firms in the industry
Firm’s behaviors
Nature of the product
The extend of barriers to entry’
The degree of monopoly power
Price levels of the products
Types of market structure
1. Oligopoly
2. Monopoly
3. Perfect competition
4. Monopolistic competition
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Oligopolies
A market structure can be characterized by competition among a small
number of large firms that have market power. This characterization is
called oligopolies.
Think about real life example.
A situation where there are only a few sellers in a particular economy
who control a particular commodity. They can, therefore, influence
prices and affect the competition. In Sri Lanka, think about mobile
network operators. There are only a few operators such as Dialog,
Mobitel, Hutch, Airtel and Etisalat.
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Features of oligopolistic market structure
Potential for collusion
Non price competition may be prevalent
High barriers to entry
Price may be relatively stable through the industry.
Goods could be homogenous.
Advantages of oligopolistic market structure
The businesses have a lot of control Prices can become competitive Allows for greater efficiency through standardization
Disadvantages of oligopolistic structure
Consumer may suffer from high prices Less creative products Barriers to new entries
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Monopoly
A monopoly is exclusive control of the market by one business because
there is no other group selling the product or offering the service. A true
monopoly rarely exists because if there is no competition, business will
increase the price while reducing output to increase profits.
A pure monopoly is defined as a single supplier.
What is the monopoly power?
Monopoly power is the degree of power held by the seller to set the price
for a good.
Characteristics of firms exercising monopoly power
Price
Efficiency
Innovations
Collusion
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Advantages of monopoly
Exploit economics of scale
Revenue
Dynamic efficiency
Avoidance of duplication of infrastructure.
Disadvantages of monopoly
Causes reduction of the quality of the product
Increased prices
Causes reduction satisfaction of the customer.
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Perfect competition
Perfect Competition is a market structure where there is a perfect degree
of competition and single price prevails.
Think about real life situation. A fish market might be an example of
something close to this (though real "perfect competition" doesn't
really exist) At the fish market, lots of sellers gather together to try
to sell the same wares, and lots of customers try to buy them with a
good knowledge of what they are buying. There is little to prevent
someone from joining in on the selling or quitting the market
altogether.
Other one is Foreign Exchange Market. Here currency is all
homogenous. Also traders will have access to many different buyers
and sellers. There will be good information about relative prices.
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Characteristics of perfect competition
Large number of firms
Products are homogenous
Free to enter and exit
Consumers and products have perfect knowledge about market
Advertisement cost is zero
No government intervention
Advantages of perfect competition
Optimal allocation of resources
Competition encourages efficiency
Responsive to consumer wishes
Consumers changed a lower price
Disadvantages of perfect competition
Insufficient profits for investment
Lack of product variety
Lack of competition over product design and specification
Unequal distribution of goods and income
externalities
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Monopolistic competition
Monopolistic Competition a market structure in which many firms sell
products that are similar but not identical.
Many small businesses operate under conditions of monopolistic
competition, including independently owned and operated high-street
stores and restaurants. In the case of restaurants, each one offers
something different and possesses an element of uniqueness, but all are
essentially competing for the same customers.
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Characteristics of Monopolistic competition
Large number of firms in the industry
Consumer and product knowledge imperfect
Entry and exit from the industry is easy
Firms are price makers and are faced with a downward
sloping demand curve
Examples for Monopolistic competition
Hotels, Inns, Restaurant business
Private schools
Insurance brokers
Funeral directors
Advantages on monopolistic competition
Lack of barriers to entry
Differentiation brings greater consumer choice and variety
Product and service quality
Consumers become more knowledgeable of products
Disadvantages of monopolistic competition
Higher prices
Allocative inefficient
Advertising
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There you can see all in one structure. It will be help you to
understand real life situation of Market Structure.
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References
http://en.wikipedia.org/wiki/Main_Page http://www.tutor2u.net/blog/index.php/economics/ http://economicsonline.co.uk/Business_economics/Competition_and_m
arket_structures.html http://wiki.answers.com/Q/What_is_an_oligopoly#slide1 http://www.ask.com/question/oligopoly-structure