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ECONOMICS MARKET STRUCTURE – PERFECT COMPETITION Market structure “Market structures” refer to the different market features that determine relations between sellers to each other, of sellers to buyers and more. There are several basic defining characteristics of a market structure, such as the following:  The item sold and the extent of production differentiation.  The ease or difficulty of entering and exiting the market.  The number of companies in the market.  The number of buyers and sellers in the market. A market is a set of buyers and sellers, commonly referred to as agents, who through their interaction, both real and potential, determine the price of a good, or a set of goods. The concept of a market structure is therefore understood as those characteristics of a market that influence the behavior and results of the firms working in that market. The main aspects that determine market structures are: the number of agents in the market, both sellers and buyers; their relative negotiation strength, in terms of ability to set prices; the degree of concentration among them; the degree of differentiation and uniqueness of products; and the ease, or not, of entering and exiting the market. The interaction and differences between these aspects allow for the existence of several market structures, from which we can highlight the following: types of market structures     

Perfect competition, Imperfect competition: Monopolistic competition, Oligopoly, Monopoly. PERFECT COMPETITION

Perfect competition expresses the idea of the combination of a wide range of firms, which freely enter or leave the market and which considers prices as information, since each firm only provides a relatively small share of the good to the market and thus do not have a great influence on it. Therefore, perfect competitors cannot influence the levels of market prices. Also, buyers are numerous, which also means that they cannot influence or set prices. Its characteristics are:   

Many firms. Freedom of entry and exit All firms produce an identical or homogeneous product.

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All firms are price takers, therefore the firm’s demand curveis perfectly elastic. There is perfect information and knowledge. Homogeneous product: all firms offer the same goods, with the same characteristics and quality as the others, without any variations.

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Large number of buyers and sellers: there should be a sufficient quantity of buyers and sellers, so that no action from a single agent will affect the market structure or its prices.

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No entry or exit barriers: there has to be free entry and exit of agents in the market. This assumption is of special interest for firms, which must be able to enter or leave the market freely.

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Price flexibility: price adjustments to changes happen as fast as possible. Usually, price changes are assumed immediately.

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Free and perfect information: all agents have perfect knowledge of products and their prices, and everything else related to them, as well as free access to this information.

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No government intervention: markets should be left alone as government intervention would only lead to imbalances in perfectly competitive markets.

Perfect competition markets are almost impossible to find in the real word as all markets have some type of imperfection. This is the reason they are mostly considered only theoretically. In the Agricultural markets there are several farmers selling identical products (carrots) to the market, and many buyers. At the market, it is easy to compare prices. Therefore, agricultural markets often get close to perfect competition. ECONOMICS TYPES OF MARKET STRUCTURE – IMPERFECT COMPETITION Imperfect competition or imperfectly competitive markets is one in which some of the rules of perfect competition are not followed. Virtually, all real world markets follow this model, as in practice all markets have some form of imperfection. MONOPOLY A monopoly is the exact opposite form of a market system as perfect competition. In a pure monopoly, there is only one producer of a particular good or service, and generally no reasonable substitute. In such a market system, the monopolist is able to charge whatever price they wish due to the absence of competition. Monopoly refers to where a single firm controls the entire market. In this scenario, the firm has the highest level of market power, as consumers do not have any alternatives. With monopolies:  The monopolist maximizes profit  It can set the price

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There are high barriers to entry and exit There is only one firm that dominates the entire market.

Characteristics of Monopoly: The main features of monopoly are as follows: 1. Under monopoly, there is one producer or seller of a particular product and there is no difference between a firm and an industry. Under monopoly a firm itself is an industry. For eg in Jamaica JPS 2. A monopoly has full control on the supply of a product. 3. There is no close substitute of a monopoly’s product in the market. 4. There are restrictions on the entry of other firms in the area of monopoly product. 5. A monopolist can influence the price of a product. He is a price-maker, not a price-taker. Advantages

1. Stability of prices- in a monopoly market the prices are most of the times stable. This happens because there is only one firm involved in the market that sets the prices if and when it feels like. In other types of market structures prices are not stable and tend to be elastic as a result of the competition that exists but this isn’t the case in a monopoly market as there is little or no competition at all. 2. Source of revenue for the government- the government gets revenue in the form of taxation from monopoly firms. 3. Massive profits- due to the absence of competitors which leads to high number of sales monopoly firms tend to receive super profits from their operations. The massive profits realized may be used in such things as launching other products, carrying out research and development among many other things that may be beneficial to the firm. 4. Monopoly firms offer some services effectively and efficiently. Disadvantages

1. Exploitation of consumers- a monopoly market is best known for consumer exploitation. There are indeed no competing products and as a result the consumer gets a raw deal in terms of quantity, quality and pricing. The firm may find it easy to produce inferior or substandard goods if it wishes because at the end of the day they know very well that the items will be purchased as there are no competing products for the already available market. 2. Dissatisfied consumers- consumers get a raw deal from a monopoly market because quality will be compromised. Therefore it is not a wonder to see very dissatisfied consumers who often complain about the firm’s products 3. Higher prices- no competition in the market means absence of such things as price wars that may have benefited the consumer and as a result of this monopoly firms tend to charge higher prices on goods and services hence inconveniencing the buyer.

4. Price discrimination- monopoly firms are also sometimes known for practicing price discrimination where they charge different prices on the same product for different consumers. 5. Inferior goods and services- competition is minimal or totally absent and as such the monopoly firm may willingly produce inferior goods and services because after all they know the goods will not fail to sell. MONOPOLISTIC COMPETITION The monopolistic competition market is a market that has quite a large number of firms, producing a variety of goods which are close substitutes of each other. Examples of monopolistic competition: Clothing - Designer label clothes are about the brand and product differentiation Characteristics of Monopolistic Competition Market: A monopolistic competitive industry has the following features:  Many firms.  Freedom of entry and exit.  Firms produce differentiated products meaning that there is a perception that the goods are different for reasons other than price (through branding);  Firms have price inelastic demand; they are price makers because the good is highly differentiated they can set the price  Buyers and sellers have imperfect information as they do not have all the information about products, consumers and competitors. The advantages of monopolistic competition Monopolistic competition can bring the following advantages: 1. There are no significant barriers to entry; therefore firms are free to enter and exit 2. Differentiation creates diversity and. Choice For example; a typical high street in any town will have a number of different restaurants from which to choose. 3. It helps in innovation because the only thing which will help the company in surviving in case of monopolistic competition is to constantly add new features to product and hence in a way one can say that monopolistic competition forces the companies to invest in research and development so that the company can produce better quality product at cheaper rates than their competitor. Disadvantages: 1. Resources are wasted on for e.g. useless packaging 2. Large number of firms – could lead to too much choice for consumers and in turn to higher search costs 3. In monopolistic competition companies spend too much money on advertising as it is the most important part as far as monopolistic competition is concerned which in turn results in increase in expenses for the company.

4. The biggest disadvantage of monopolistic competition is that due to differentiated products chances are companies may charge more than fair price from the consumers for extra features in the product. OLIGOPOLY MARKET STRUCTURE In an oligopoly market structure, there are just a few interdependent firms that collectively dominate the market. While individually powerful, each of these firms also cannot prevent other competing firms from holding sway over the market. Examples of firms in this market structure are telecommunications and petroleum companies Depending on the industry, each of the firms might also sell products that are somewhat differentiated from those of the other firms. Their interdependence means that they are also likely to change their prices according to their competitors. DUOPOLY is a special type of oligopoly, in which there are exactly two sellers. Under duopoly, it is assumed that the product sold by the two firms is homogeneous and there is no substitute for it. Examples where two companies control a large proportion of a market are: (i) Pepsi and Coca-Cola in the soft drink market A cartel is defined as a group of firms that gets together to make output and price decisions. The conditions that give rise to an oligopolistic market are also conducive to the formation of a cartel. The oligopolistic market structure builds on the following assumptions:     

All firms maximize profits, Oligopolies can set prices, Barriers to entry and exit exist in the market, Products may be homogeneous or differentiated, and Only a few firms dominate the market.

Characteristics of Oligopoly An oligopoly usually exhibits the following features: 1. Product branding: Each firm in the market is selling a branded product. 2. Entry barriers: Entry barriers maintain supernormal profits for the dominant firms. It is possible for many smaller firms to operate on the periphery of an oligopolistic market, but none of them is large enough to have any significant effect on prices and output 3. Inter-dependent decision-making: Inter-dependence means that firms must take into account the likely reactions of their rivals to any change in price, output or forms of non-price competition. 4. Non-price competition: Non-price competition is a consistent feature of the competitive strategies of oligopolistic firms. The Advantages of an Oligopoly

1. Since there is such little competition, the companies that are involved in the market have the potential to bring a large amount of profits. 2. Having only a few companies that offer the goods or service that you are looking for makes it easy to compare between them and choose the best option for you. 3. Being able to easily compare prices forces these companies to keep their prices in competition with the other companies involved in the market. This is a great benefit for the consumers because prices continually go lower as other companies lower their prices. Disadvantages of Oligopoly 1. An oligopoly discourages innovation by creating numerous barriers to market entry. Firms have no need to innovate because there aren’t new ideas being introduced to the market. 2. With a small number of firms in a market, they can collude together to fix the prices of the goods or services they sell. SUMMARY

HELPFUL YOUTUBE VIDEOS Market Structure: Perfect Competition: Monopoly: Monopolistic Competition: Oligopoly:

https://youtu.be/9Hxy-TuX9fs https://youtu.be/61GCogalzVc https://youtu.be/7UWgKZsKZOc https://youtu.be/T3F1Vt3IyNc https://youtu.be/ElBF2D7IHAI...