Lesson 1: Market Structures

Market structures are the key points in evaluating business’ economic

environments. It deals with strategic decision making and focuses on both
economics and marketing, making professional entrepreneurs precisely judge
industry, policy changes, and market news. The significant operational
definition of market structure is a concern to both economists and marketers
since they have different methodological approaches in this, and each of them
has their strengths and weaknesses.
Moreover, these are the most notable characteristics of market structures:
 The relationship between a seller to another seller, a seller to his/her
buyer, and many more.
 The product that has been sold and the extent of product
differentiation, which affects cross-price elasticity of demand.
 The number of companies or corporations, including the scale and
range of international competition, in the market.
 The concerns in entering and exiting the market.
 The dissemination of market shares for the largest firms.
 The number of buyers and how they behave to mandate a product’s
price and quantity.
 The turnover of customers which can be affected by the extent of
consumer or brand loyalty and the influence of persuasive advertising
and marketing.
The interactions and variations in these aspects provided the existence of
different market structures, which are the following:
 Monopoly. Herein, there is a single merchant of a product for which
there is no close alternative.
 Monopolistic Competition in which differentiated product has many
vendors.
 Perfect Competition, wherein, a similar product has many sellers.
 Oligopoly, whereupon, there are few sellers of a standardized or a
differentiated product.
Lesson 2: Monopoly
A monopoly pertains to a situation wherein there is only a single
company that produces a certain product in the entire market. Because of that,
they have the power or the authority to manipulate their products, such as
minimizing their outputs to put higher prices in it and to gain more profit. In
this situation, consumers have a lesser benefit, especially when the product is
essential to them, making them buy it despite being expensive.
Monopolies commonly emerge because there is a high barrier to entry
and exit in a particular market. The three main factors that can become the
reason for it are the following.
 Ownership of a fundamental resource - If the key resource is solely
owned by a firm, the firm can limit the access to this source, therefore
creating a monopoly.
 Economies of scale – In some sectors, a single firm can sustain
products or goods at a lower price than two or more firms could,
resulting in a natural monopoly, which arises even without the
intervention of the government.
 Government Regulation – To suffice the interest of the public, the
government usually restricts market entries in a legal way, which is
through copyright laws and patents.
Frankly said, monopolies are usually unwelcomed to society because it can
cause deadweight loss by producing lesser outputs than the competitive ones,
yet still, have higher prices. However, the government can react to these by
demanding price regulations, establishing competition laws, nationalizing the
monopolies, or by not doing anything at all.
Example of Monopoly:
1. Google 7. Carnegie Steel Company
2. Microsoft
3. Alibaba Group 8. Luxottica
4. Visa Inc.
5. Indian Railways 9. Facebook
6. Da Beers 10. railways
Lesson 3: Monopolistic Competition
When there is a numerous quantity of small firms competing against
each other, it is called a Monopolistic Competition. However, in this type of
market structure, several companies sell the same product but they have their
differences. Those differences give them market power which lets them charge
higher prices for a product, but is within a certain range. These key factors can
include style, brand name, location, packaging, advertisement, and pricing
strategies, which became every firm’s basis in marketing.
You can assume the following when discussing the monopolistic
competition:
 Every firm is a price setter and can maximize their profit.
 They sell similar yet slightly different products.
 The consumers can favor a product more than the other one.
 There are easy entrances and exit in this market.
This type of market structure can be observed in reality. Some of the
common examples are:
 Cap’n Crunch, Lucky Charms, Froot Loops, and Apple Jacks, which
are all companies that sell breakfast cereals with small differences.
 McDonald and Burger King, which both sell slightly different burgers
 Nike and Adidas, which both sell running shoes, but are different in
some ways.
Example of Monopolistic Competition:
1. Grocery stores
2. Hotels
3. Fast food industry
4. Restaurants
5. Hairdressers
6. Clothing stores
Lesson 4: Perfect Competition
Perfect competition is a type of market structure where many products
are similar and may substitute each other since they have the same features,
price and, quality. There are many sellers and consumers in this type of market
with almost the same products. Moreover, a perfectly competitive market
requires few barriers to enter and it is easy for producers to quit whenever they
want. They also have uniform prices that depend on the demand and supply
which means that the market has full control over implying prices.
Perfectly competitive markets show these characteristics:
 Both the producers and consumers have perfect knowledge without
information failures. The details and information in this market are
easily accessible to all participants. Thus, risk-taking is not necessarily
important and the power of an entrepreneur is limited.
 Producers and consumers are making coherent decisions for their
benefit. For instance, producers make decisions to maximize their
profits, and consumers make decisions to maximize their utility.
 There are no hindrances to enter nor exit from this type of market.
 Companies manufacture identical products that are not branded.
 Producers don’t have the power to influence the market price nor the
condition.
Example of Perfect Competition:
1. Crop industry: Prices of crops remain constant throughout the board in
developed nations, as they have resources to grow the same amount of
crop each year.
2. Dairy industry
3. Supermarkets
4. Foreign exchange markets
5. Online shopping
6. Street vending

Lesson 5: Oligopoly
An oligopoly is a type of market structure where firms dominate the market by
supplying either similar or differentiated products. There are only a few
companies in this structure and they have control over price implying. It is
also difficult to enter this market since there are a lot of barriers. Moreover,
participants in oligopolies are price setters rather than takers. Some examples
of oligopoly companies are the automobile industry, the steel industry, aircraft
manufacturing industry, etc.
Oligopoly markets show these characteristics:
 Entrepreneurs maximize profits.
 Oligopolies set prices rather than take price.
 There are a lot of barriers. It includes government licenses, economies
of scale, patents, and access to expensive and complex technology.
Also, some government policies are favoring the current companies in
the industry so it is hard to enter for beginners.
 Interdependent. Like for example, if one firm change and decreases its
price, it will significantly affect the other firms.
 Rampant advertising since most companies use national media to
promote their products.
Example of Oligopoly:
1. Car industry
2. Petrol retail
3. Pharmaceutical industry
4. Coffee shop retail
5. Airlines
6. Supermarket industry
7. Wireless communications industry
8. Banking industry