Chapter 8
An Overview of Market
Structures
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Microeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia.
1
Learning Objectives
• Define and describe the four basic
models of alternative market
structures, their assumptions,
distinguishing features and operation.
• Explain, briefly, how each of these
market structures relates to the
demand side of the market.
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Microeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia.
2
Learning Objectives (cont.)
• List the determinants of market structure in
our economy.
• Review other important elements of
competition, and how they may lead to
differences in the contestability of different
types of markets.
• Provide a brief overview of the remainder of
our study of microeconomics
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Microeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia.
3
Market Analysis
• Market behaviour depends on the
degree of competition on both the
demand and supply sides
• On the supply side a market could
have anything between one and very
many suppliers
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Microeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia.
4
Four Basic Market Models
There are four market models with
varying degrees of competition in
supply:
1.
pure competition
2.
pure monopoly
3.
monopolistic competition
4.
oligopoly
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Microeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia.
5
Pure Competition
Distinguishing characteristics:
• Very large number of sellers
• Standardised (homogeneous) product
• ‘Price taker’
–
no individual firm can influence market price
• Free entry (and exit)
• Absence of non-price competition
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Microeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia.
6
Pure Competition (cont.)
Examples:
• Precise examples of pure competition
are rare
• Agricultural commodities fit quite well
with competitive model
various agricultural crops
– fruits
– livestock
–
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Microeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia.
7
Pure Monopoly
Distinguishing characteristics:
• Single seller
• No close substitutes
• ‘Price maker’
–
the monopolist’s price is the market price
• Blocked entry
• Goodwill advertising
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Microeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia.
8
Pure Monopoly (cont.)
Examples:
• Public utilities such as
electricity and water
• Steel
• Sugar
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Microeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia.
9
Monopolistic Competition
Distinguishing characteristics:
• Relatively large numbers
• Product differentiation
• Limited price control
• Relatively easy entry
• Non-price competition
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Microeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia.
10
Monopolistic Competition
(cont.)
Examples:
• retail trade
• some clothing items e.g. dresses
• petrol stations
• restaurants
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Microeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia.
11
Oligopoly
Distinguishing Characteristics:
• Fewness
• Standardised or differentiated products
• Pricing interdependence
–
may lead to degrees of collusion
• Difficult entry
• Advertising and quality competition
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Microeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia.
12
Oligopoly (cont.)
Examples:
• aluminium ingots (standardised)
• bank services
• beer (differentiated)
• information media
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Microeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia.
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Buyers’ Side of Markets
• Perfect/pure competition
–
many buyers
• Monopsonistic competition
–
Fairly large number of buyers
• Oligopsony
–
Few buyers of the product
• Monopsony
–
Only one buyer of the product
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Microeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia.
14
Market Structure Based on
Number of Buyers
• Bilateral monopoly
–
a single seller and one buyer
• Imperfect competition
–
all market structures that deviate from
pure/perfect competitive model
• Market characteristics are equally
applicable to resource markets
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Microeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia.
15
Factors Contributing to the
Different Market Structures
• Legislation and government policies
–
Some promote competition and some monopoly
• The policies and practices of business
firms
–
Mergers, consolidations, and foreign
multinationals—monopoly/oligopoly
• Technological considerations
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Microeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia.
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Other Competitive
Dimensions
• Geographical factors
–
location can influence degree of competition
• Inter-industry competition
–
aluminium could face competition from other
products
• Technological advances
–
new products and technology can change
competitiveness over time
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Microeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia.
17
Contestable Markets
• Markets where entry to and exit from
the industry can be accomplished at
low or very low cost
• Market contestability limits the ability
of monopolists to use pricing powers
to achieve economic profits
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Microeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia.
18
Next Chapter:
The Costs of Production
Copyright  2004 McGraw-Hill Australia Pty Ltd
PPTs t/a Microeconomics 7/e by Jackson and McIver
Slides prepared by Muni Perumal, University of Canberra, Australia.
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