only follow it.
And so,
MARKET they CANNOT set the
price because if they
will set the price either
STRUCTURE in lower or higher rate,
there is a higher
probability that they will
gain loss instead of
Introduction profit.
When we say market, we are referring to the Demand Curve Perfectly Elastic
industry. For instance, the auto-mobile industry, it is
the market itself.
And those sellers present in the industry, is what
we called “firms”. For example, in the auto-mobile The price is set at only
industry, we have the different firms such as Toyota, one point regardless of
Ford and etc… the quantity demanded.
However, the demand
Therefore, market and firms are different to one curve for purely
another. competitive market is
downward sloping.
Pure Competition Non-price Not necessary
competition
It is different from Perfect Competition whereas Example of Products Fruits and vegetables –
there is symmetric information between the buyers mostly agricultural
and the sellers wherein if may alam ang seller na products.
certain information about the product such as quality
of the product, ingredients that are being used and
etc.., gano’n din si buyer. However, in reality it does PURE MONOPOLY
NOT exist because there is still asymmetric Number of Seller One seller – most of the
information present between the buyers and sellers. time we are referring to
Thus, only Pure Competition exists. big companies/ firms
but it is not always
PURE COMPETITION necessary that you are
Number of Seller Very large number of a big company or that
small sellers you have a large
capital.
For example,
Balintawak Market, As long as you are the
there are a lot of sellers only seller in the
but those sellers are market, you can be
considered as “small considered as
sellers”. That’s why monopoly.
there is no barrier to Type of Product No close substitute –
entry or exit. unique products.
Type of Product Homogenous or Entry and Exit Blocked Entry –
identical – standardized because the barrier to
products, the products entry and exit exists
of stall A for example is such as:
not different to stall B.
Entry and Exit Freedom of entry and (1) financial capital –
exit you need a large
Control over the price Price taker – price financial capital in order
followers wherein to put up a business in
whatever the price the monopoly.
market will set; they will
(2) economies of Control over the price Can control the price
scale – as the (collusion or price war)
production increases, Demand Curve Kinked Curve
the average cost of
producing such good/
service decreases.
(3) patent/ copyright –
intellectual property Combination of two
rights for your invention. demand curves;
Control over the price Price setter (price Relatively elastic
discrimination) demand curve and
Demand Curve Relatively Inelastic relatively inelastic
demand curve.
Non-price Relatively important
competition since they have
Regardless the price differentiated products.
set by the monopolist, Example of Products Gasoline, steel, cars,
consumers will still buy sugar, cement and
such products. airlines
Non-price To enlarge the market
competition
Example of Products Water and electricity MONOPOLISTIC COMPETITION
(meralco), trains like the Number of Seller Many sellers acting
PNR, LRT and MRT independently -
combination of pure
monopoly and pure
OLIGOPOLY competition.
Number of Seller Few sellers (two or
more) Although there are
many sellers in the
There are some market, the decision of
instances that there are one firm does not affect
only two sellers in the the other.
market. It is what we Type of Product Products are
called “duo-gopoloy” differentiated
Entry and Exit Relatively easy to enter
Thus, there are some Control over the price Can dictate the price –
degree of monopolist they can set the price
power when it comes to since they are acting
the price and products independently.
produced. Moreover, Demand Curve Relatively Elastic
there are peculiar
relationship among
oligopolistic firms which
what we called “mutual Non-price Very important because
interdependence” competition their products are
wherein the decision of different to one another.
a firm affects the other. Example of Products Soaps, shoes, dresses,
Type of Product Homogenous; others candies, and services
differentiated of parlors and
Entry and Exit Difficult to enter – restaurants etc.
there’s a presence of
barrier to entry and exit
which same goes to
pure monopoly.
ADDITIONALS (Q and A)
(1) What is profit maximizing price?
- As a general rule in all market structure, you can
maximize the profit when your marginal revenue is
equal to marginal cost.
MR = MC (Profit Maximizing Point)
(2) Difference between price taker and price
setter?
- Price takers are price followers, the one who
follows the price set by the market. On the other
hand, price setters are the one who dictate and set
the price in the market.
(3) Price discrimination and Collusion?
- Price discrimination can be exercised by the
monopolist through charging different prices to
different consumers or based on the purchasing
power of the buyers while when we say Collusion,
sellers are communicating with each other.
(4) Can government intervene in setting the
price?
- The government is hands off. Only the market
demand and supply can control the price of the
product.
