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AE 11 Chapter 6 - MARKET STRUCTURES

The document discusses various market structures including perfect competition, monopolistic competition, oligopoly, and monopoly, highlighting their characteristics and implications for pricing and profit maximization. It emphasizes the importance of understanding these structures in relation to businesses in the Philippines. The chapter concludes with references for further reading on the topic.

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31 views24 pages

AE 11 Chapter 6 - MARKET STRUCTURES

The document discusses various market structures including perfect competition, monopolistic competition, oligopoly, and monopoly, highlighting their characteristics and implications for pricing and profit maximization. It emphasizes the importance of understanding these structures in relation to businesses in the Philippines. The chapter concludes with references for further reading on the topic.

Uploaded by

mmadelainexxigo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Market Structures

CHAPTER 6
AE11 | MANAGERIAL ECONOMICS
Learning Objectives:
At the end of this chapter, the student should be able to:
1. explain the importance of market structure in our daily lives;
2. differentiate the different market structures and their
characteristics;
3. identify and describe (using graphs) how each market structure
maximizes profit;
4. relate the concepts of market to the different businesses
existing in the Philippines; and
5. identify the pricing structure of the four market structures
Market Structures

are the individual characteristics of each particular industry in


our economy.

show the organization and composition of firms to the market.

refers to the competitive in which buyers and sellers operate.


Characteristics of Market Structures:

1. Number of firms in the industry.


2. Nature of the product produced.
3. Degree of power each firm has.
4. Degree to which the firm can influence price .
5. Non-price competition or advertisement .
6. Profit levels.
7. Extent of barriers to entry.
Perfect Competition 1. How many players are there in
this market structure? Are there
a few or many?
2. What is the nature of the
products being produced?
3. How much competition exists in
an industry?
4. How much "pricing power" do
businesses have in the
industry?
5. Is there a need for the firm to
advertise?
6. How much profit can they have?
7. Is it easy, difficult, or impossible
to enter the industry?
Characteristics of Perfect Competition:
1. Number of firms in the industry
there are many numbers of sellers/players
no single seller has the power to determine market price unless a seller
drastically decreases its price

2. Nature of the product produced


sell similar products (homogeneous)

3. Degree of power each term has


each producer supplies a very small proportion of the total industry
output
Characteristics of Perfect Competition:

4. Degree to which the firm can influence price


firms have no influence to pricing
considered as price takers

5. Non-price competition or advertisement


no need for an advertisement
Characteristics of Perfect Competition:

6. Profit levels
profit on firms is very small as they just allow the market to
dictate their price

7. Extent of barriers to entry


easy entry and exit from the industry
Monopolistic Competition

refers to a market situation with a relatively large number of


sellers offering similar but not identical products

Sellers compete among themselves and can differentiate


their goods in terms of quality and branding to look different.
Characteristics of Monopolistic Competition:
1. Number of firms in the industry
There are many numbers of sellers.

2. Nature of the product produced


There are many sellers in this market structure offering
similar but not identical products.

3. Degree of power each term has


Each producer could have either a large or small proportion
of total industry output, depending on its impact on the
market.
Characteristics of Monopolistic Competition:

4. Degree to which the firm can influence price


Firms have some control over their product prices because
they can make their products slightly different from
competitors.

5. Non-price competition or advertisement


Companies use advertisement because if their products are
not yet known in the market, they might not be able to
maximize their profit.
Characteristics of Monopolistic Competition:

6. Profit levels
Firms can earn profits by differentiating their products and
attracting a loyal customer base, though long-term profits
may be limited due to competition.

7. Extent of barriers to entry


Entry and exit in monopolistic competition are relatively
easy because raw materials and production processes are
generally accessible.
Oligopoly

Refers to a market structure where only a few dominant firms


control a significant portion of the industry.

These firms are highly interdependent, meaning that the pricing


and production decisions of one firm can significantly impact
the others.
Characteristics of Oligopoly:
1. Number of firms in the industry
There are a few large firms that control the majority of the market.

2. Nature of the product produced


Products can be either homogeneous (identical) or differentiated,
depending on the industry.

3. Degree of power each firm has


Significant influence over the market due to their large market share,
but they must consider the actions of their competitors.
Characteristics of Oligopoly:

4. Degree to which the firm can influence price


Firms have considerable pricing power, but they often engage
in strategic pricing to avoid price wars with competitors.

5. Non-price competition or advertisement


Firms frequently use advertising, branding, and product
differentiation to compete, as price competition can be risky in
an oligopoly.
Characteristics of Oligopoly:
6. Profit levels
Firms in an oligopoly can earn substantial profits due to their
market power, but profits are often influenced by the
competitive actions of other firms in the industry.

7. Extent of barriers to entry


Barriers to entry are high, often due to significant capital
requirements, economies of scale, and established brand
loyalty, making it difficult for new firms to enter the market.
Monopoly

only one producer exists in the industry

offer products needed by people


Characteristics of Monopoly:
1. Number of firms in the industry
only one seller

2. Nature of the product produced


Products are usually exclusively distributed by one player, but are still
subject to government control to ensure that price are monitored
correctly.

3. Degree of power each firm has


huge opportunity to gain, but government regulations might intervene
at times
Characteristics of Monopoly:

4. Degree to which the firm can influence price


significant influence on prices
price setters

5. Non-price competition or advertisement


do not need to advertise themselves any longer
promote good will to the public
Characteristics of Monopoly:

6. Profit levels
profit of firms is very high

7. Extent of barriers to entry


very difficult to enter into a monopolistic industry
End of Chapter
Thank You!

References:
Jimenez, Christian. (2022) Market Structures. Managerial Economics in the 21st century (1st ed.). Rex Printing Company Inc.
Mankiw, N. G. (2016). The Market Forces of Supply and Demand (8th ed.). CENGAGE Learning Custom Publishing.
Mankiw, N. G. (2016). Monopolistic Competition (8th ed.). CENGAGE Learning Custom Publishing.
Mankiw, N. G. (2016). Oligopoly (8th ed.). CENGAGE Learning Custom Publishing.
Mankiw, N. G. (2016). Monopoly (8th ed.). CENGAGE Learning Custom Publishing.

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