Market Structure Characteristics:
Implications for Competition
Imperfect Competition
Farmers
vs
Agribusinesses
Market Structure Characteristics
Ø 1.
Market concentration
Ø 1.
Market concentration
Ø 2.
Degree of product differentiation
Ø 3.
Extent of barriers to entry and exit
Ø 4.
Market environment
Market Structure Characteristics
Ø 3.
• Due to absolute cost advantages, economies of
scale, capital startstart-up costs, patents, licensing,
preferential government policies
• The greater the barriers, the less the competition
and the greater the market and price control
• Number and size distribution of sellers and buyers
• The greater the market concentration, the less
likely that price will be determined by the natural
forces of supply and demand
Ø 2.
Degree of product differentiation
• The more perceived differentiation, the greater the
market and price control
Extent of barriers to entry and exit
Ø 4.
l
Market environment
Unique market conditions:
• Level of output in the industry (thin markets, more
price control)
• Elasticity of supply and demand
• Proportion of consumers food dollar
1
Perfect Competition
Ø Most farmers and ranchers
Ø Faces
l
l
Imperfect Competition
Ø Most
l
horizontal demand curve
MR = price = demand
No price control / influence
Ø Three
l
l
Ø Since
price and profits are low, try to make
it up with increased output
l
Monopolistic Competition
• Many small firms with few barriers to entry
• Differentiated Product
– Ice cream, bread, hamburgers
– Feed supplements, hand tools
• Downward sloping demand curve
– Attempt to make as inelastic as possible
• Over the long run –
Market price is higher than perfect competition
Output is lower
Only normal profits
main types
Monopolistic Competition
Oligopoly / Oilgopsony
Monopoly / Monopsony
Ø All
–
–
–
of the food and fiber industry
Input suppliers and commodity buyers to
market retailers
face downward sloping demand curves
Oligopoly / Oligopsony
• Few (~3(~3-7) buyers / sellers, each with significant
influence on price and volume
• Differentiated product
– Farm machinery, cigarette manufacturers, meat processors
• Downward sloping demand curve
– Demand is even more inelastic than monopolistic
competition
• Interdependent marketing strategies and pricing
behavior
– Price leadership
– Rely on nonnon-price competition and price stability
– Economic profits can be earned
2
Monopoly / Monopsony
• One buyer / seller in the market
• No competition
– Barriers may be economic or legal
• Higher price and lower volume provided
• Economic profits can exist (but not guaranteed!)
• Examples include:
Where does all this
leave the farmer?
– RoundRound-up Ready corn and soybeans
– Marketing orders for milk
– French coco-ops and certified lowlow-THC hemp seed
3