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Forms of Market

The document discusses different market structures: perfect competition, monopolistic competition, oligopoly, and monopoly. It defines each market structure and compares their key features such as number of firms, market power, elasticity of demand, excess profits, efficiency, and pricing power. Perfect competition has many firms, no market power, and firms are price takers. Monopoly has a single firm with high market power and prices above marginal costs. Oligopoly and monopolistic competition lie between these two extremes.

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Dhrampal Gupta
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8K views

Forms of Market

The document discusses different market structures: perfect competition, monopolistic competition, oligopoly, and monopoly. It defines each market structure and compares their key features such as number of firms, market power, elasticity of demand, excess profits, efficiency, and pricing power. Perfect competition has many firms, no market power, and firms are price takers. Monopoly has a single firm with high market power and prices above marginal costs. Oligopoly and monopolistic competition lie between these two extremes.

Uploaded by

Dhrampal Gupta
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Group 5

 Definitions
of MARKET??
 Types/Forms of Market
◦ Perfect Competition & Its Features
◦ Monopolistic Competition & Its Features
◦ Oligopoly & Its Features
◦ Monopoly & Its Features
 Comparison
 Conclusion
A place where buying and selling occurs.

According to economists,

“A market is the process by which the


prices of goods and services are established”
Barter System
 The first markets used the “Barter System”.

 It is a system of exchange by which goods or


services are directly exchanged without using a
medium of exchange, such as money.

 Invention of money resolved the problems of the


barter system.
• Lack of Double Coincidence of Wants
1.

• Lack of store value


2.

• Lack of Division
3.

• Lack of a Common Measure of Value


4.
Forms of
Market

Perfect Imperfect Monopoly

Monopolistic Oligopoly
Competition competition

More Competition More Concentration


Perfect Competition
A market form where there are many firms
that sell a certain homogenous product.
 A single firm can not influence the
market price.
 It is a hypothetical situation; it cannot exist in
real case scenario.
In this nobody can influence the prices, including
buyers and sellers
It is also believed that everyone has equal excess to
information.
 Large number of  All firms are price
buyers and sellers. takers, Therefore
 Freedom of Entry and firm’s demand curve
Exit; this will require is perfectly elastic.
low sunk costs.  There is perfect
 All firms produce an information and
identical or knowledge.
homogenous product.  AR = MR.
Perfectly Elastic Demand Curve
Foreign Exchange Markets Rural Agricultural markets
 Currency is all  In some cases, there are
homogenous. several farmers selling
 Traders will have access identical products to the
to many different buyers market.
and sellers.  These markets often get

 There will be good close to perfect


information about competition.
relative prices.
MONOPOLISTIC COMPETITION
 A market situation where we
find a large number of buyers
and sellers .
 Sell products that
are differentiated from one
another (e.g. by branding or
quality) and hence are not
perfect substitutes.
 A firm takes the prices charged
by its rivals as given and
ignores the impact of its own
prices on the prices of other
firms.
 Product differentiation
 Many firms
 No entry and exit cost in the long run
 Independent decision making
 Some degree of market power

 Buyers and Sellers do not have perfect information


(incomplete information)
Downward Sloping Demand Curve
 Some restaurants enjoy monopolistic competition
because of their popularity and reputation.

 Demand for some specific models of automobiles


outstrips the production capacity. This creates
situation of monopolistic competition.

 Some newspaper in some places enjoy almost


monopolistic position in spite of existence of other
competitors.
 A state of limited competition, in
which a market is shared by a
small number of producers or
sellers.
 There are few firms in the
market, producing wither an
identical product or
differentiated but the close
substitutes goods.
 Oligopoly is derived from the
Greek words “oligos” which
means a few and “pollen” which
means to sell.
 Profit Maximization  Product
conditions differentiation
 Ability to set price  Perfect Knowledge
 Entry and Exit  Interdependence
 Number of firms  Non-price
 Long run profits competition
Kinked Demand Curve
 OPEC (Oil and Petroleum exporting countries)

 Airlines

 Telecom industries.
 A market situation where there
exists a single seller selling such
a good which has no close
substitutes.

 They are the PRICE SETTERS.

 A single seller exists for a


product. i.e. 100% of market
share.
 Single seller
 Large number of buyers
 No close substitutes
 Price discrimination
 No selling costs
 Relatively inelastic demand curve
 AR>MR
 AR&MR curves are downward sloping
 No free entry and exit of firms
Price

QTY
 A body of the Government of India responsible for
enforcing The Competition Act, 2002 throughout
India.
 Established on 14 October 2003; became fully
functional in May 2009.
 Mr. Ashok Chawla IAS, is the current Chairperson
of the CCI.
 June 2012 – CCI imposed a fine of 63.07
billion(US$1.0 billion) on 11 cement companies
for cartelization.
 8 February 2013 - CCI imposed a penalty of 522
million (US$8.7 million) on the Board of Control for Cricket in
India (BCCI) for misusing its dominant position.
 2014 - CCI imposed a fine of Rs. 1 Crore upon Google for
failure to comply with the directions given by the Director
General(DG)seeking information and documents.
 August 2014 - CCI imposed a fine of around 2,545 crores on
14 auto companies for indulging in anti-competitive trade
agreements.
Product Profit
Number of Market Elasticity of Excess Pricing
differentiatio Efficiency maximizatio
firms power demand profits power
n n condition

Perfect Perfectly
Infinite None None No Yes P=MR=MC Price taker
Competition elastic

Monopolistic Highly elastic Yes/No


Many Low High No MR=MC Price setter
competition (long run) (Short/Long)

Absolute
Relatively
Monopoly One High (across Yes No MR=MC Price setter
inelastic
industries)

Relatively Relatively
Oligopoly Few Firms Less Yes* * * Price setter
HIgh Inelastic

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