READI

NGMATERI
AL

1)MEANI
NGOFMARKETANDFORMSOFMARKET

A)Meani
ngofMar
ket

Mar
ketdoesnotmeanashoppi
ngcompl
ex,
iti
samechani
sm wi
thi
nwhi
cht
hebuy
ers

&sel
l
erscomei
ntocont
actwi
theachot
her
.

B)FORMSOFMARKET

Dependi
ngondegr
eeofcompet
it
ionorno.off
ir
msi
nthemar
ket
,iti
scat
egor
isedi
nto

f
oll
owi
ngf
orms:

I
)Per
fectCompet
it
ion

I
I)Monopol
y

I
II
)Monopol
i
sti
cCompet
it
ion

I
V)Ol
i
gopol
y

Ther
ear
emanycr
it
eri
aofcl
assi
fi
cat
ion,
thenumberofsel
l
ers,
simi
l
ari
tyofpr
oduct
s,

av
ail
abi
l
ityofi
nfor
mat
ion,
mobi
l
ityoff
ir
msandt
hei
nput
sengagedi
nthef
ir
m,et
c.

What
evert
hecr
it
eri
atheendr
esul
tisr
efl
ect
edi
nonet
hing:
howmuchi
nfl
uencean

i
ndi
vi
dual
sel
l
er,
onhi
sown,
isabl
etoexer
ciseont
hemar
ket
.Lowert
hei
nfl
uencemor
e

t
hecompet
it
ivenat
ureoft
hemar
keti
tindi
cat
es.I
fthei
nfl
uenceofani
ndi
vi
dual
sel
l
eri
s

zer
o,orv
irt
ual
l
yzer
o,t
hemar
keti
ssai
dtobeper
fect
lycompet
it
ive.

I
)MEANI
NGANDFEATURESOFPERFECTCOMPETI
TIONMARKET

A)MEANI
NG

Per
fectcompet
it
ioncanbedef
inedei
theri
nter
msofi
tschar
act
eri
sti
cfeat
ures,
ori
nter
ms

oft
heuni
queendr
esul
toft
hesechar
act
eri
sti
cs.Uni
quei
nthesenset
hati
tisspeci
fi
ctoa

per
fect
lycompet
it
ivemar
ket
.Int
ermsofi
tsf
eat
ures,
aper
fect
lycompet
it
ivei
samar
ket
wher
ether
ear
elar
genumberofbuy
ersandsel
l
ers,
thef
ir
mspr
oducehomogeneous

pr
oduct
s,t
hebuy
ersandsel
l
ershav
eper
fectknowl
edgeandt
hef
ir
msar
efr
eet
oent
eror

makeanexi
tinandoutofi
ndust
ry.

B)FEATURESOFPERFECTCOMPETI
TIONMARKET

1)Lar
genoofbuy
erandsel
l
ers

'
Lar
genumber
'impl
ythatt
henumberofsel
l
ersi
slar
geenought
orenderasi
ngl
e

sel
l
er'
sshar
eint
otal
mar
ketsuppl
yoft
hepr
oducti
nsi
gni
fi
cant
.Ithasaf
urt
her

i
mpl
i
cat
ion.I
nsi
gni
fi
cantshar
emeanst
hati
fonl
yonei
ndi
vi
dual
fir
mreducesorr
aises

i
tsownsuppl
y,t
hepr
evai
l
ingmar
ketpr
icer
emai
nsunaf
fect
ed.Thepr
evai
l
ingmar
ket

pr
icei
stheonewhi
chwassett
hrought
hei
nter
act
ionofmar
ketdemandandmar
ket

suppl
yfor
ces,
forwhi
chal
lthesel
l
ersandal
lthebuy
erst
oget
herar
eresponsi
ble.One

si
ngl
esel
l
erhasnoopt
ionbutt
osel
lwhati
tpr
oducesatt
hismar
ketdet
ermi
nedpr
ice.

Thi
sposi
ti
onofani
ndi
vi
dual
fir
mint
het
otal
mar
keti
sref
err
edt
oaspr
icet
aker
.Thi
s

i
sauni
quef
eat
ureofaper
fect
lycompet
it
ivemar
ket
.

Si
mil
arl
y,t
he'
l
argenumber
'ofbuy
ersal
sohast
hesamei
mpl
i
cat
ion.Asi
ngl
ebuy
er'
s

shar
eint
otal
mar
ketdemandi
ssoi
nsi
gni
fi
cantt
hatt
hebuy
ercannoti
nfl
uencet
he

mar
ketpr
iceonhi
sownbychangi
nghi
sdemand.Thi
smakesasi
ngl
ebuy
eral
soa

pr
icet
aker
.

Tosum up,
thef
eat
ure'
l
argenumber
'di
cat
esi
nef
fect
ivenessofasi
ngl
esel
l
eror

asi
ngl
ebuy
eri
ninf
luenci
ngt
hepr
evai
l
ingmar
ketpr
iceoni
tsown,
render
inghi
m

si
mpl
yapr
icet
aker
.

2)HomogeneousPr
oduct
s

I
tmeanst
hatt
hebuy
erst
reatt
hepr
oduct
sofal
lthef
ir
msi
nthei
ndust
ryas
homogenous.Thepr
oduct
spr
oducedbyt
hef
ir
msar
eident
ical
,ort
reat
edas

i
dent
ical
,orper
fect
lyst
andar
dized.Thebuy
ersdonotdi
sti
ngui
sht
heout
put

ofonef
ir
mfr
om t
hatoft
heot
her
.

Thei
mpl
i
cat
ionoft
hisf
eat
urei
sthatsi
ncet
hebuy
erst
reatt
hepr
oduct
sas

i
dent
ical
theyar
enotr
eadyt
opayadi
ff
erentpr
icef
ort
hepr
oductofanyone

f
ir
m.Theywi
l
lpayt
hesamepr
icef
ort
hepr
oduct
sofal
lthef
ir
msi
nthe

i
ndust
ry.Ont
heot
herhand,
anyat
temptbyaf
ir
mtosel
li
tspr
oductatahi
gher

pr
icewi
l
lfai
l
.

3)Per
fectKnowl
edgeandPer
fectMobi
l
ity

Thef
ir
mshav
eal
ltheknowl
edgeaboutt
hepr
oductmar
ketandt
hei
nput

mar
ket
s.Buy
ersal
sohav
eper
fectknowl
edgeaboutt
hepr
oductmar
ket
.

Thei
mpl
i
cat
ionofper
fectknowl
edgeaboutt
hepr
oductmar
keti
sthatanyat
temptby

anyf
ir
mst
ochar
geapr
icehi
ghert
hant
hepr
evai
l
inguni
for
m pr
icewi
l
lfai
l
.Thebuy
ers

wi
l
lnotpaybecauset
heyhav
eper
fectknowl
edge.Ther
eisnoi
gnor
ancef
act
or

oper
ati
ngi
nthemar
ket
.Thesel
l
ersdonotchar
geal
owerpr
iceduet
oignor
ance.The

buy
ersdonotpayahi
gherpr
iceduet
oignor
ance.Auni
for
m pr
icepr
evai
l
sint
he

mar
ket
.Asr
egar
dst
heknowl
edgeaboutt
hei
nputmar
ket
s,t
hei
mpl
i
citassumpt
ioni
s

t
hateachf
ir
m hasanequal
accesst
othet
echnol
ogyandt
hei
nput
susedi
nthe

t
echnol
ogy
.Nof
ir
m hasanycostadv
ant
age.Costst
ruct
ureofeachf
ir
mist
hesame.

Al
lthef
ir
mshav
eauni
for
m costst
ruct
ure.Si
ncet
her
eisuni
for
m pr
iceanduni
for
m

costi
ncaseofal
lfi
rms,
andsi
ncepr
ofi
tsequal
costl
esspr
ice,
all
thef
ir
msear
n

uni
for
m pr
ofi
ts.

4)Fr
eedom ofEnt
ryandExi
t

Fr
eedom ofent
rymeanst
hatt
her
ear
enoar
ti
fi
cial
bar
ri
ersandnat
ural
bar
ri
ersi
nthe
wayofanewf
ir
m wi
shi
ngt
oent
eri
ntoi
ndust
ry.Thear
ti
fi
cial
bar
ri
ersmayt
aket
he

f
orm ofpat
entr
ight
s,l
egal
rest
ri
cti
ons,
etc.Thenat
ural
bar
ri
ermayt
aket
hef
orm of

hugecapi
tal
expendi
tur
erequi
redt
ost
artanewf
ir
m,whi
cht
hef
ir
m wi
shi
ngt
oent
eri
s

notabl
etoar
range.

Fr
eedom ofexi
tmeansnobar
ri
ersi
nthewayofaf
ir
m deci
dingt
oleav
ethei
ndust
ry.

Gov
ernmentr
ules,
labourl
aws,
lossofhugef
ixedcapi
tal
etc.donotcomei
ntheway
.

Thef
reedom ofent
ryandexi
toff
ir
mshasani
mpor
tanti
mpl
i
cat
ion.Thi
sensur
est
hat

nof
ir
m canear
nabov
enor
mal
prof
it
sint
hel
ongr
un.Eachf
ir
m ear
nsj
ustt
henor
mal

pr
ofi
ts,
i.
e.mi
nimum necessar
ytocar
ryonbusi
ness.I
nMi
croeconomi
cs,
nor
mal
prof
it
s

i
str
eat
edasanoppor
tuni
tycost
,andt
her
efor
e,count
edi
ncal
cul
ati
onoft
otal
cost
.

Si
ncepr
ofi
tequal
stot
alr
evenuemi
nust
otal
cost
,nor
mal
prof
itmeanszer
oeconomi
c

pr
ofi
t.

I
ftheexi
sti
ngf
ir
msar
eear
ningabov
enor
mal
prof
it
s,i
.e.posi
ti
veeconomi
cpr
ofi
ts.

At
tract
edbyt
heposi
ti
vepr
ofi
ts,
thenewf
ir
msent
ert
hei
ndust
ry.Thei
ndust
ry'
s

out
put
,i.
e.mar
ketsuppl
y,goesup.Thepr
icecomesdown.Newf
ir
mscont
inuet
o

ent
erandt
hepr
icecont
inuest
ofal
lti
l
leconomi
cpr
ofi
tsar
ereducedt
ozer
o.

I
ftheexi
sti
ngf
ir
msar
eincur
ri
ngl
osses.Thef
ir
msst
artl
eav
ing.Thei
ndust
ry'
sout
put

st
art
sfal
l
ing,
pri
cest
art
sgoi
ngup,
andal
lthi
scont
inuest
il
ll
ossesar
ewi
pedout
.The

r
emai
ningf
ir
msi
nthei
ndust
ryt
henonceagai
near
njustt
henor
mal
prof
it
.

C)THREEMAJORCONCLUSI
ONS

I
)Per
fect
lycompet
it
ivef
ir
m hasnopr
icepol
i
cy,
sof
ir
misapr
icet
akernott
hepr
ice

maker
.

I
I)Demandcur
veofper
fect
lycompet
it
ivef
ir
mishor
izont
alt
oxaxi
s,whi
chshows
 t
hatf
ir
m cansel
lanyamountofgoodatpr
evai
l
ingpr
ice.

I
II
)Per
fect
lycompet
it
ivef
ir
m ear
nsonl
ynor
mal
prof
iti
nthel
ongr
un.

D)PRI
CEDETERMI
NATI
ONUNDERPERFECTCOMPETI
TION

I
nPer
fectcompet
it
ion,
thef
orcesofmar
ketsuppl
y(i
.e.suppl
ybyi
ndust
ry)andmar
ket

demand(
demandbyal
lthebuy
ers)det
ermi
net
hemar
ketpr
icei
ntheI
ndust
ry.Thef
ir
m

t
akest
hepr
icewhi
chi
sdet
ermi
nedi
ntheI
ndust
ry.Bei
ngapr
icet
aker
,fi
rm adopt
sthi
s

pr
iceandi
sfr
eet
osel
lanyquant
it
yitl
i
kesatt
hispr
ice.Thepr
icet
akerf
eat
ure

det
ermi
nest
heshapeoft
hef
ir
msARandMRcur
ves.Aspr
icei
ssamei
nper
fect

compet
it
ionARi
ssameasMR,
whi
chi
sshownf
rom aschedul
e:

Pr
ice Quanti
ty TR AR MR
5 1 5 5 5
5 2 10 5 5
5 3 15 5 5
5 4 20 5 5
5 5 25 5 5

Aspert
heav
eragemar
ginal
rel
ati
onshi
p,whenARi
sconst
ant
,MRmustbeequal
to

AR.Thus,
ARi
sal
sot
heMRoft
hef
ir
m.Per
fect
lycompet
it
ivef
ir
misapr
icet
akee.

I
I)MEANI
NGANDFEATURESOFMONOPOLYMARKET

A)MEANI
NG

Monopol
yisonef
ir
mIndust
rywhi
chhasf
ull
cont
rol
overquant
it
ysuppl
i
ed&pr
ice.

I
tissi
ngl
esel
l
erofapr
oductwi
thnocl
osesubst
it
utes.

B)FEATURESOFMONOPOLY

1)Si
ngl
esel
l
erandl
argenumberofbuy
ers

Ther
eissi
ngl
epr
oducerofacommodi
tyi
nthemar
ket
.Hemaybeal
oneorhemaybea

gr
oupofpar
tner
sorJoi
ntSt
ockCompany
.Bei
ngsi
ngl
epr
oduceroft
hegood,
fir
m has

f
ull
cont
rol
oversuppl
yandpr
iceoft
hecommodi
ty.

I
mpl
i
cat
ion;
nocompet
it
or,
socanchanget
hepr
iceaspert
hesi
tuat
ion&getabnor
mal
pr
ofi
t.

2)Rest
ri
cti
onsi
ntheent
ryandexi
toff
ir
ms

rmonopol
yther
ear
est
rongr
est
ri
cti
onsi
ntheent
ry&exi
toff
ir
mint
hei
ndust
ry.

Gener
all
yar
egov
ernmentcont
rol
s,pat
entr
ight
sgr
ant
edt
othef
ir
m duet
owhi
ch

newf
ir
mscannotent
er.I
mpl
i
cat
ion:
Monopol
yfi
rm get
sabnor
mal
prof
iti
nthel
ongr
un

ast
her
ear
enoot
herf
ir
ms.

3)Het
rogeneouspr
oduct
s

Monopol
yfi
rm mai
ntai
nsi
tsmonopol
yst
atusbecauset
her
ear
enocl
ose

subst
it
utesf
oundi
nthemar
ket
.Itr
est
ri
ctscompet
it
ioni
nthemar
ket&consumer
s

hav
enochoi
ce.

I
mpl
i
cat
ion:
Produceri
sabl
etochar
gehi
ghpr
icewhi
chconsumer
shav
etopayand

t
husf
ir
m get
sabnor
mal
prof
iti
nthel
ongr
un.

4)Pr
iceDet
ermi
nat
ion

Amonopol
i
stmaychar
gedi
ff
erentpr
icesf
rom di
ff
erentconsumer
sfort
hesamepr
oduct
.

I
tiscal
l
edaspr
icedi
scr
imi
nat
ion.I
tispossi
blef
ort
hepr
oducert
ochar
gedi
ff
erentpr
ice

wi
tht
hedi
ff
erentconsumer
swhent
hev
ari
ousconsumer
shav
edi
ff
erentel
ast
ici
tyoft
hei
r

demand.Pr
oducercanchar
gehi
ghpr
icef
rom t
heconsumerhav
ingi
nel
ast
icdemandand

compar
ati
vel
ylesspr
icemaybechar
gedf
rom t
heconsumer
shav
inghi
ghel
ast
ici
tyof

demand.Duet
opr
icedi
scr
imi
nat
ionamonopol
i
sti
ncr
easesi
tspr
ofi
tmar
gins.

5)NonPr
iceCompet
it
ion

Sel
l
ingcostl
i
keexpendi
tur
eonadv
ert
isement
,mar
ket
ingoft
hepr
oducti
snonpr
ice

compet
it
ion,
whi
chi
snotr
equi
redi
nmonopol
y.Somemonopol
yfi
rmsi eex
ncur pendi
tur
e

onadv
ert
isementt
omai
ntai
ngoodr
elat
ionshi
pwi
tht
hei
rconsumer
s.

6)Demandcur
vef
ormonopol
yfi
rm
Monopol
i
sthasf
ull
cont
rol
overpr
ice,
itdoesn’
tmeant
hatt
hemonopol
i
stcansel
lany

amountofcommodi
tyatanypr
ice.I
fmonopol
i
sti
sincr
easi
ngt
hepr
ice,
quant
it
y

demandedbyt
heconsumerwi
l
lreduce,
wher
easquant
it
ydemandedwi
l
lincr
easedi
f

pr
icei
sreduced.Sot
her
eisi
nver
ser
elat
ionshi
pbet
weenpr
iceandquant
it
ysol
dby

monopol
i
stf
ir
m &demandcur
veofmonopol
yfi
rmi
sdownwar
dsl
opi
ng.

C)CAUSESOFARI
SINGMONOPOLYMARKETSTRUCTURE

I
)Pat
entRi
ght
s

Pat
entr
ight
sar
etheaut
hor
it
ygi
venbyt
hegov
ernmentt
oapar
ti
cul
arf
ir
mto

pr
oduceapar
ti
cul
arpr
oductf
oraspeci
fi
cti
meper
iod.

I
I)For
mat
ionofCar
tel

Car
tel
ref
erst
oacol
l
ect
ivedeci
siont
akenbyagr
oupoff
ir
mst
oav
oid

out
sidecompet
it
ionandsecur
ingmonopol
yri
ght
.

I
II
)Gov
ernmentl
i
censi
ng

Gov
ernmentpr
ovi
dest
hel
i
censet
oapar
ti
cul
arf
ir
mtopr
oducea

par
ti
cul
arcommodi
tyexcl
usi
vel
y.

I
II
)MONOPOLI
STI
CCOMPETI
TION

A)MEANI
NG

Monopol
y+Compet
it
ion=Monopol
i
sti
cCompet
it
ion

Undermonopol
i
sti
ccompet
it
ion,
eachf
ir
mist
hesol
epr
oducerofa

par
ti
cul
arbr
andorpr
oduct
.I
tenj
oys‘
monopol
yposi
ti
on’
asf
arasa

par
ti
cul
arbr
andi
sconcer
ned.
Howev
er,
sincet
hev
ari
ousbr
andsar
e

cl
osesubst
it
utes,
itsmonopol
yposi
ti
oni
sinf
luencedduet
ost
if
f

‘
Compet
it
ion’
from ot
herf
ir
ms.

So,
monopol
i
sti
ccompet
it
ioni
samar
ketst
ruct
ure,
wher
ether
eiscompet
it
ionamong
al
argenumberofmonopol
i
sts.

B)FEATURESOFMONOPOLI
STI
CCOMPETI
TIONMARKET

1)Lar
genoofbuy
ers&sel
ler
s

Lar
geno.ofbuy
ers&sel
l
ersar
ether
e,butt
hei
rno.
isl
essert
hanper
fectcompet
it
ion.

Socont
ri
but
ionofeachf
ir
m orconsumeri
ssosmal
li
ntot
alsuppl
yordemandt
hatt
hey

can’
taf
fectt
hepr
iceduet
othi
sfeat
ure.Ther
ear
elar
genumber
soff
ir
mssel
l
ing

cl
osel
yrel
ated,
butnothomogeneouspr
oduct
s.Eachf
ir
m act
sindependent
lyandhasa

l
i
mit
edshar
eoft
hemar
ket
.So,
ani
ndi
vi
dual
fir
m hasl
i
mit
edcont
rol
overt
hemar
ket

pr
ice.Lar
genumberoff
ir
msl
eadst
ocompet
it
ioni
nthemar
ket
.

2)Pr
oductDi
ff
erent
iat
ion

I
tist
hedi
sti
nct
ivef
eat
ureoft
hiscompet
it
ion.Pr
oduct
swhi
chf
ir
msar
esel
l
ingar
enot

per
fectsubst
it
utesofeachot
her
,butcl
osesubst
it
utesofeachot
her
.Ther
ear
etwo

t
ypesofpr
oductdi
ff
erent
iat
ion:
Real
dif
fer
encewhenpr
oduct
shav
ereal
qual
i
tat
ive

di
ff
erence.I
magi
nar
ydi
ff
erence–whengoodsar
edi
ff
erentonl
yincol
our
,desi
gn,

br
andet
c,butsamei
nqual
i
ty.Eachf
ir
misi
naposi
ti
ont
oexer
cisesomedegr
eeof

monopol
y(i
nspi
teofl
argenumberofsel
l
ers)t
hroughpr
oductdi
ff
erent
iat
ion.The

pr
oductofaf
ir
miscl
ose,
butnotper
fectsubst
it
uteofot
herf
ir
m.

I
mpl
i
cat
ionof‘
Productdi
ff
erent
iat
ion’
ist
hatbuy
ersofapr
oductdi
ff
erent
iat
ebet
ween

t
hesamepr
oduct
spr
oducedbydi
ff
erentf
ir
ms.Ther
efor
e,t
heyar
eal
sowi
l
li
ngt
opay

di
ff
erentpr
icesf
ort
hesamepr
oductpr
oducedbydi
ff
erentf
ir
ms.Pr
oduct

di
ff
erent
iat
ioncr
eat
esamonopol
yposi
ti
onf
oraf
ir
m asf
ir
msar
eabl
etomaket
hei
r

ownconsumergr
oups.
.

Hi
gherdegr
eeofpr
oductdi
ff
erent
iat
ion(
i.
e.bet
terbr
andi
mage)makesdemandf
ort
he
pr
oductl
essel
ast
icandenabl
est
hef
ir
mtochar
geapr
icehi
ghert
hani
tscompet
it
or’
s

pr
oduct
s.Forexampl
e,Toot
hpast
e:Pepsodent
,Col
gat
e,Neem,
Babool
,cl
oseup,

sensodi
neet
c.Cy
cles:
Atl
as,
Her
o,Av
on,
etc.
Tea:
BrookeBond,
Tat
atea,
Todayt
ea,
etc.

Soaps:
Lux,
Hamam,
Lif
ebuoy
,Pear
s,ci
nthol
,et
c.

3)NonPr
iceCompet
it
ion

Undermonopol
i
sti
ccompet
it
ion,
product
sar
edi
ff
erent
iat
edandt
hesedi
ff
erencesar
e

madeknownt
othebuy
erst
hroughsel
l
ingcost
s.Sel
l
ingcost
sref
ert
otheexpenses

i
ncur
redonmar
ket
ing,
sal
espr
omot
ionandadv
ert
isementoft
hepr
oduct
.Suchcost
s

ar
eincur
redt
oper
suadet
hebuy
erst
obuyapar
ti
cul
arbr
andoft
hepr
oducti
n

pr
efer
encet
ocompet
it
or’
sbr
and.Duet
othi
sreason,
sel
l
ingcost
sconst
it
utea

subst
ant
ial
par
toft
het
otal
costundermonopol
i
sti
ccompet
it
ion.

I
tmustbenot
edt
hatt
her
ear
enosel
l
ingcost
sinper
fectcompet
it
ionast
her
eis

per
fectknowl
edgeamongbuy
ersandsel
l
ers.Si
mil
arl
y,undermonopol
y,sel
l
ingcost
s

ar
eofsmal
lamount(
onl
yfori
nfor
mat
ivepur
pose)ast
hef
ir
m doesnotf
ace

compet
it
ionf
rom anyot
herf
ir
m.I
naddi
ti
ont
opr
icecompet
it
ion,
non-
pri
cecompet
it
ion

al
soexi
stsundermonopol
i
sti
ccompet
it
ion.Non-
Pri
ceCompet
it
ionr
efer
stocompet
ing

wi
thot
herf
ir
msbyof
fer
ingf
reegi
ft
s,maki
ngf
avour
abl
ecr
edi
tter
ms,
etc.
,wi
thout

changi
ngpr
icesoft
hei
rpr
oduct
s.

Fi
rmsundermonopol
i
sti
ccompet
it
ioncompet
einanumberofway
stoat
tract

cust
omer
s.Theyusebot
hPr
iceCompet
it
ion(
compet
ingwi
thot
herf
ir
msbyr
educi
ng

pr
iceoft
hepr
oduct
)andNon-
Pri
ceCompet
it
iont
opr
omot
ethei
rsal
es.

4)Fr
eedom ofEnt
ryandExi
t

Undermonopol
i
sti
ccompet
it
ion,
fir
msar
efr
eet
oent
eri
ntoorexi
tfr
om t
hei
ndust
ry

atanyt
imet
heywi
sh.I
tensur
est
hatt
her
ear
enei
therabnor
mal
prof
it
snorany
abnor
mal
lossest
oaf
ir
mint
hel
ongr
un.Howev
er,
itmustbenot
edt
hatent
ry

undermonopol
i
sti
ccompet
it
ioni
snotaseasyandf
reeasunderper
fectcompet
it
ion.

Al
lthef
ir
msgetnor
mal
prof
iti
nthel
ongr
un.

5)LackofPer
fectKnowl
edge

Buy
ersandsel
l
ersdonothav
eper
fectknowl
edgeaboutt
hemar
ketcondi
ti
ons.Sel
l
ing

cost
scr
eat
ear
ti
fi
cial
super
ior
it
yint
hemi
ndsoft
heconsumer
sandi
tbecomesv
ery

di
ff
icul
tforaconsumert
oev
aluat
edi
ff
erentpr
oduct
sav
ail
abl
eint
hemar
ket
.Asa

r
esul
t,apar
ti
cul
arpr
oduct(
alt
houghhi
ghl
ypr
iced)i
spr
efer
redbyt
heconsumer
sev
eni
f

ot
herl
esspr
icedpr
oduct
sar
eofsamequal
i
ty.

6)Pr
ici
ngDeci
sion

Af
ir
m undermonopol
i
sti
ccompet
it
ioni
snei
therapr
ice-t
akernorapr
ice-
maker
.

Howev
er,
bypr
oduci
ngauni
quepr
oductorest
abl
i
shi
ngapar
ti
cul
arr
eput
ati
on,
each

f
ir
m haspar
ti
alcont
rol
overt
hepr
ice.Theext
entofpowert
ocont
rol
pri
cedepends

uponhowst
rongl
ythebuy
ersar
eat
tachedt
ohi
sbr
and.

I
V)OLI
GOPOLY

A)MEANI
NG

Ol
i
gopol
yisamar
ketsi
tuat
ioni
nwhi
chani
ndust
ryhasonl
yaf
ewf
ir
ms(
orf
ew

l
argef
ir
mspr
oduci
ngmostofi
tsout
put
)mut
ual
l
ydependentf
ort
aki
ngdeci
sions

aboutpr
iceandout
put
.Thet
wof
eat
uresoft
hisdef
ini
ti
on–f
ewf
ir
msand

i
nter
dependencebet
weenf
ir
ms–ar
eexpl
ainedi
nasect
ionbel
ow.

I
finanol
i
gopol
ymar
ket
,thef
ir
mspr
oducehomogeneouspr
oduct
s,i
tiscal
l
ed

Per
fectOl
i
gopol
y.

I
fthef
ir
mspr
oducedi
ff
erent
iat
edpr
oduct
s,i
tiscal
l
edi
mper
fectOl
igopol
y.

I
finanol
i
gopol
ymar
ket
,thef
ir
mscompet
ewi
theachot
her
,iti
scal
l
eda
non-
col
lusi
ve,
ornon-
cooper
ati
ve,
oli
gopol
y.

I
fthef
ir
mscooper
atewi
theachot
heri
ndet
ermi
ningpr
iceorout
putorbot
h,i
t

i
scal
l
edcol
lusi
veol
igopol
y,orcooper
ati
veol
igopol
y.

Whent
her
ear
eonl
ytwof
ir
mspr
oduci
ngapr
oduct
,iti
scal
l
edduopol
y.I
tisaspeci
al

caseofol
i
gopol
y.

B)FEATURESOFOLI
GOPOLYMARKET

1)Fewf
ir
ms

Fewf
ir
msmeanei
theronl
yaf
ewf
ir
msi
nnumberoraf
ewbi
gfi
rmspr
oduci
ng

mostoft
heout
putoft
hei
ndust
ry.Theexactnumberoff
ir
msi
snotdef
ined.

Thewor
d‘f
ew’
signi
fi
est
hatt
henumberoff
ir
msi
smanageabl
eenought
o

makeaguessoft
hel
i
kel
yreact
ionsofr
ival
sbyaf
ir
m.

2)Fi
rmsar
eint
erdependenti
ntaki
ngpr
iceandout
putdeci
sions.

Whent
her
eisonl
yal
i
mit
ednumberoff
ir
ms,
iti
sli
kel
ythatr
ival
shav
esome

knowl
edgeast
ohowt
hesef
ir
msoper
ate.I
tonef
ir
m doessomet
hingaboutt
hepr
ice

andquant
it
yoft
hepr
oducti
tpr
oduces,
ther
ival
sar
eli
kel
ytot
akequi
cknot
eofi
tand

r
eactbychangi
ngt
hei
rownpr
iceandout
putpl
ans.Ther
efor
ethegi
venf
ir
m,expect
ing

r
eact
ionsf
rom i
tsr
ival
s,t
akesi
ntoaccountsuchpossi
bler
eact
ionsbef
oret
aki
ngany

deci
sionaboutt
hepr
iceandout
putoft
hepr
oducti
tpr
oduces.I
tmakeseachf
ir
m

dependentonot
herf
ir
msi
nthei
ndust
ry.

3)Bar
ri
erst
otheent
ryoff
ir
ms.

Themai
nreasonwhyt
henumberoff
ir
msi
ssmal
li
sthatt
her
ear
ebar
ri
erswhi
ch

pr
eventent
rynewf
ir
msi
ntoi
ndust
ry.Pat
ent
s,l
argecapi
tal
,cont
rol
overt
hecr
uci
al

r
awmat
eri
alset
c,pr
eventnewf
ir
msf
rom ent
eri
ngi
nthemar
ket
.Onl
ythosewhoar
e
abl
etocr
osst
hesebar
ri
ersar
eabl
etoent
er.

4)Non-
pri
cecompet
it
ion

Fi
rmst
ryt
oav
oidpr
icecompet
it
ionf
ort
hef
earofpr
icewar
.Theyuse

ot
hermet
hodsl
i
keadv
ert
isi
ng,
bet
terser
vicest
ocust
omer
s,et
c.t
o

compet
ewi
theachot
her

5)Di
ff
icul
ttot
raceFi
rm’
sDemandcur
ve.

Underol
i
gopol
yiti
sdi
ff
icul
ttodet
ermi
nef
ir
m’sdemandcur
ve.Thi
sisbecauseofhi
gh

degr
eeofI
nterdependenceamongcompet
it
ors.Whenf
ir
mloweri
tspr
ice,
demandf
or

i
tspr
oductmaynoti
ncr
ease,
becauset
her
ival
fir
msmayl
owert
hepr
icemor
ebecause

ofwhi
cht
hebuy
ersshi
ftt
other
ival
fir
ms.I
mpl
i
est
hatt
her
eisnospeci
fi
cresponseof

quant
it
ydemandedt
ochangei
npr
ice.Thi
smakesi
timpossi
blet
odr
awanyspeci
fi
c

demandcur
vef
oraf
ir
m underol
i
gopol
y