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, , This chapter covers the types of market such as, perfect competition, monopoly, oligopoly and, monopolistic competition, in which business, firms operate.

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, , Basically, when we hear the word market, we think of a, place where goods are being bought and sold., , , , In economics, market is a place where buyers and, sellers are exchanging goods and services with the, following considerations such as:, • Types of goods and services being traded, • The number and size of buyers and sellers in the market, • The degree to which information can flow freely

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 Perfect or Pure Market,  Imperfect Market

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Perfect Market is a market situation which, consists of a very large number of buyers, and sellers offering a homogeneous, product. Under such condition, no firm can, affect the market price. Price is determined, through the market demand and supply of, the particular product, since no single buyer, or seller has any control over the price.

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Perfect Competition is built on two critical, assumptions:, , , , The behavior of an individual firm, The nature of the industry in which it, operates, ,  The firm is assumed to be a price taker, ,  The industry is characterized by freedom of, entry and exit

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Industry, • Normal demand and supply curves, • More supply at higher price, , Firm, • Price takers, • Have to accept the industry price

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Perfect Competition cannot be found in the real, world. For such to exist, the following conditions, must be observed and required:,  A large number of sellers,  Selling a homogenous product,  No artificial restrictions placed upon price or, quantity,  Easy entry and exit,  All buyers and sellers have perfect knowledge of, market conditions and of any changes that occur, in the market,  Firms are “price takers”

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 There are very many small firms,  All producers of a good sell the same product, ,  There are no barriers to enter the market,  All consumers and producers have ‘perfect, , information’,  Firms sell all they produce, but they cannot set, a price.

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 The firm’s objective is to produce the level of, , output that will maximize profit,  Some inputs are variable and therefore fixed, costs arise regardless whether the firm is, operating or not,  Since the firm is a price taker, it has no, control on the price of a product

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All inputs and costs, of production are, variable,  The firm can build, most appropriate, scale of plant to, produce the, optimum level of, output, 

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In economic theory, imperfect competition is a, type of market structure showing some but not, all features of competitive markets., Forms of imperfect competition include:, , Monopoly,  Oligopoly,  Monopolistic competition, 

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comes from a Greek word ‘monos’ which means, ‘one’ and ‘polein’ means to ‘sell’,  There is only one seller of goods or services, , , A monopoly should be distinguished from a cartel., (Cartel refers to a market situation in which firms agree, to cooperate with one another to behave as if they, were a single firm and thus eliminate competitive, behavior among them.)

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There is only one producer or seller of goods and, only one provider of services in the market.,  New firms find extreme difficulty in entering the, market. The existing monopolist is considered, giant in its field or industry.,  There are no available substitute goods or services, so that it is considered unique.,  It controls the total supply of raw materials in the, industry and has no control over price.,  It owns a patent or copyright.,  Its operations are under economies of scale., 

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Monopolies are classified according to, circumstances they arise from, that is, cost, structure of the industry, possibly the result of, law, or by other means.

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Natural Monopoly,  is a market situation where is a single firm can supply, , the entire market due to the fundamental cost, structure of the industry., , Legal Monopoly,  is sometimes called as de jure monopoly, a form of, , monopoly which the government grants to a private, individual or firm over the product or services., , Coercive Monopoly,  is a form of monopoly whose existence as the sole, , producer and distributor of goods and services is by, means of coercion (legal or illegal), so that most of, the time it violates the principle of free market just to, avoid competition.

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A, monopolist, is, considered a price, maker, since he is the, sole seller of a, product that has no, close substitute in, the market.

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In the long-run, all, inputs and costs are, variable,, and, the, monopolist can make, his optimal scale of, plant to make the best, level of output.

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comes from the Greek word “oligo” which means, ‘few’ and “polein” means ‘to sell’.,  small number of sellers, each aware of the action, of others,  All decisions depend on how the firms behave in, relation to each other, , , , , In oligopoly, conjectural interdependence is, present, that is, the decision of one firm influences, and are influenced by the decision of other firms in, the market.

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There are a small number of firms in the, market selling differentiated or identical, products.,  The firm has control over price because of the, small number of firms providing the entire, supply of a certain product.,  There is an extreme difficulty for new, competitors to enter the market., 

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1., , Pure or Perfect Oligopoly, • If the firms produce homogeneous products, , 2., , Imperfect or Differentiated Oligopoly, • If the firms produce differentiated products, , 3., , Collusive Oligopoly, • If the firms cooperate with each other in determining price or, output or both, , 4., , Non-collusive Oligopoly, • If firms in an oligopoly market compete with each other

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Cartel is a formal agreement among oligopolists to, set-up a monopoly price, allocate output, and share, profit among members., , Collusion is a formal or an informal agreement, among oligopolists to adopt policies that will restrict, or reduce the level of competition in the market.

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, , Kinked demand curve is defined as the, demand curve of the individual firm in, oligopolistic market. It has a “kink” at the, existing price caused by the firm’s, expectation of the actions its rivals are likely, to take if the firm changes its price.

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, , , , , Market situation in which there are many sellers, producing highly differentiated products., Monopolistic competition is also perfect, competition plus product differentiation., Product differentiation gives each monopolistic, competitor some market power, since each, competitor can raise price slightly without losing, all its customers.

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, , , , , , , A large number of buyers and sellers in a given market, act independently., There is a limited control of price because of product, differentiation., Sellers offer differentiated products or similar but not, identical products., New firms can enter the market easily. However, there is, a greater competition in the sense that new firms have, to offer better features of their products., Economic rivalry centers not only upon price but also, upon product variation and product promotion.

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A market situation in which there is only one buyer, of goods and services in the market. It is, sometimes considered analogous to monopoly in, which there is only one seller of goods and services, in the market., Monopsony power gives them the ability to, control their unit cost for an input which is similar, to the way the monopoly controls their price.

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A market situation where there are a small, number of buyers. This is usually with a small, number of firms competing to obtain the factors, of production., , Under this market situation, firms are buyers and, not sellers. This is sometimes analogous to, oligopoly, where there are few sellers.