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| Market Structure in Economics | IndianTechnoEra |
Market
The term market is derived from the latin word “Marcatus” which means merchandise or trade. Market is a place where buyers and sellers meet together for the exchange of title of goods.
Definition of Market
“Market is a area or atmosphere of potential exchange” ------ Phillip Kotler
“Market is not a geographical meeting place but as any getting together of buyers and sellers, in person, by mail, telephone, telegraph and inter net or any other means of communication” ------ Prof. Mitchel.
Main features of market
1. Area: Hey, economics market means the entire area over which bars and sellers are asking sprayed and have close contact.
2. Buyers and sellers: Both are needed in market. If one of them not exist in any region, it will not to be called a market.
3. One commodity: Every commodity has its own market like where sugar market as many commodities, so many markets.
4. Pre competition. There should be free competition between bars and sellers. Market Byers try to buy at the cheapest rate, at the sellers try to sell at the highest rate.
Main forms of markets
Market structure
Market structure is the interconnected characteristics of a market, such as the number and relative strength of buyers and sellers, degree of freedom in determining the price, level and forms of competition, extent of product differentiation and ease of entry into and exit from the market
Market structure is best defined as the organizational and other characteristics of a market.
The types of market structures
- Perfect Competition
- Monopoly
- Monopolistic Competition
Perfect Competition
According to Professor Leftwich
Perfect competition is a market in which there are many firms selling identical products with no firm large enough relative to the entire market to be able to influence market price.
All firms sell an identical product and all firms are price takers.
All firms have a relatively small market share and buyers know the nature of the product being sold and the prices charged by each firm.
The industry is characterized by freedom of entry and exit. It is also referred as “PURE COMPETITION”.
Example: Potatoes are sold in markets where all vendors sell homogenous products at homogeneous prices.
Example: Potato is sold at markets etc. where all vendors sell homogenous products, i.e. potato.
Characteristics or features of perfect competition
Large number of parts and sellers
Homogeneous product.
Independent decision making.
Free entry and exit of forms.
Perfect knowledge.
Perfect mobility.
Absence of transport costs or transactions are costless.
Coastless lack of selling costs.
Revenue
What is Revenue?
Revenue is the receipt of money from the sale of output by a firm in a given time period.
Concepts of Revenue
Total Revenue
Average revenue
Marginal Revenue
What is Total Revenue (TR)?
Total revenue is the total sale proceeds of a firm by selling certain units of a commodity at a given price.
If a firm sell 10 units of a commodity at ` 20 each, Them TR = 20 x 10 = ` 200.00
Thus total revenue its price per unit multiplied by the number of units sold.
TR = P x Q where P - Price per unit Q - Quantity sold.
TR = AR X Q = 𝑴𝑹
What is Average Revenue (AR)?
Average Revenue is the revenue earned per unit of output. Average Revenue is found out by dividing the total revenue by the number of units sold.
AR = TR/Q
TR = P.Q
Thus AR = P.Q/Q = P
What is Marginal Revenue (MR)?
Marginal Revenue is the change in total revenue resulting from sale of an additional unit of the commodity.
e.g. If a seller realises ` 200.00 after selling 10 units and `225 by selling 11 units, we say MR = (225.00 - 200.00) = ` 25.00
Mathematically it can be expressed as
MR = dTR/ Dq
Where d is the rate of change.
Equilibrium of a Firm / Profit Maximisation by a firm
TR/AR/MR FOR PERFECT COMPETITION MARKET
TR, AR, MR, under perfect competition
Monopoly
A Monopoly is a market structure in which there is only one producer/seller for a product. In other words, the single business is the industry.
Entry into such a market is restricted due to high costs or other impediments, which may be economic, social or political.
Gillette- Razor blade
Gillette is a razor blade that enjoys monopoly in market because every consumer purchases this brand and this is a trusted brand.
Gillette Mach 3 turbo sensitive and Gillette fusion are latest version.
Downward sloping inelastic demand curve of a monopoly firm demand curve of a firm reflected by its AR curve under monopoly is downward sloping meaning that the monopoly firm can sell more at a lower price and less at a higher price. The demand curve of the monopoly firm is highly inelastic. This is because the product does not have any close substitute.
Main features of monopoly
One seller and large number of buyers.
Monopoly jobs also an industry.
Test exams on the entry of the new forms.
No close substitutes.
Price maker.
Save of demand curve.
TR/AR/MR FOR MONOPOLY MARKET
Monopolistic Competition
Monopolistic competition is a type of imperfect competition such that one or two producers sell products that are differentiated from one another as goods but not perfect substitutes (such as from branding, quality, or location).
In monopolistic competition, a firm takes the prices charged by its rivals as given and ignores the impact of its own prices on the prices of other firms.
Consumers may like some special thing in the particular brand.
Shoes are produced by many producers but consumers may feel that a particular company is branded or the quality produced by one company is better than the other.
Monopoly competition
Downward sloping highly elastic demand curve of a firm under monopolistic competition.
Demand curve of a firm reflected by its AR curve under monopolistic competition is downward sloping. The demand curve is highly elastic. This is because differentiated products under monopolistic competition has more close substitutes.
TR/AR/MR FOR MONOPOLISTIC COMPETITION
TR, AR, and MR Under Imperfect Competition
Comparison between monopoly and monopolistic competition
1. Nature of product. Product differentiation is a characteristics feature of monopolistic competition, but it is not essential under monopoly.
2. Number of sailors. There is a single seller under monopoly, but there are many sellers producing clothes substitutes under monopolistic competition.
3.Eentry of new forms. In the long term, entry of new forms in the market is possible under monopolistic competition, but it is not possible under monopoly.
Oligopoly
What is oligopoly?
An oligopoly is a market in which there are few producers of a product. For instance, there are only 5 forms in India manufacturing cars. Hence car market will be called Oligopoly.
Main features of oligopolistic market
1. Few sellers: In case of oligopoly, the number of sellers is very small, but that one of the buyers is very large.
2. Interdependence: Each form sales a substantial part of production of a commodity.
3. Selling costs: Is firm under oligopoly in course. Lot of expenditure on different modes of advertisement in order to push the sale of its products.
4. Group behaviour: Under oligopoly, there is internal dependence as well as competition among the firm.
5. Uncertainty of demand core: Demand curve is uncertain under oligopoly. Demand curve is perfectly elastic under perfect competition. It means of firm can sell as much of the commodity at the prevailing price as it is ours.
Comparison between monopoly and perfect competition
1. Nature of product: All forms produce Homogeneous products under perfect competition. Product may or may not be homogeneous under monopoly.
2. Number of sellers and buyers: There are large number of bars and sellers of homogeneous product under perfect competition. No single seller by changing his apply and no single buyers by changing his demand can influence the price.
3. Let's check Canon entry: New forms are free to enter and old ones are free to quit the industry under perfect competition. On the contrary, there are restrictions on the entry of new forms in case of monopoly.
4. Price and output of the commodity: A firm is a price taker under perfect competition and show cannot influence the price. The only decision that a firm takes is how much to produce at the price, which is determined by the industries, so that it should be in equilibrium.
5. Shape of demand curve: Under perfect competition, demand car based parallel to X axis . In other words, average revenue and marginal revenue are equal. Under the monopoly, its slopes downward from left to right.
Comparison between monopolistic competition and perfect competition
1. Nature of the product. Under perfect competition, all forms produce Majerus product. Under monopolistic competition forms product differentiated quotes.
2. Determination of price both under perfect competition as well or monopolistic competition prize of the Community has determined by the force of market supply and market demand.
3. Selling costs. Composition of producer in course cost of production alone, but under monopolistic competition advertiser in course in addition to cost of production, selling cost as well.
4. Average and marginal revenue cost. Both market substitutes have downward sloping revenue corpse, but under monopolistic competition, average revenue and marginal revenue cops are more elastic.
Differentiate between perfect, monopolistic and monopoly market
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Key: Market structures: Features of Perfect Competition, Monopoly, and Monopolistic Competition.