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Term Paper

On

Bangladesh market structure and real life examples

Course Name: Industrial Economics

Course Code: ECON-2405

Submitted by

Abir Alam Yusuf

ID: 2214881023

Section: A

Submitted To

Asst prof Nahin Rahman

Department of Economics

BUP
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“Bangladesh market structure and real life examples”

Introduction
Market is the best place where businesses sell their products to the customers. Market
could be any place where buyers and sellers meet for trade. In market buyers bargain to
get products at lowest price and sellers want to sell at maximum price. This behaviour
helps to determine the market price. Market could be in shopping mall, street shop or
online market place. Firms face competition when they sell similar products because their
is lots of other firms they also selling similar kind of product. Inversely, there are markets
where firm face no competition or less competition. When there is lots of firm in the
market and they sell similar products which means excess or equal supply which obliged
to sellers a lower price. But when there is few or single firm that means less supply than
demand which give them an extra power to set higher price. This behaviours strongly
effect the market structure.

Market Structure
Market Structure refers to competitive environment in which buyers and sellers of the
product operate. Market Structure is best defined as the organisational and characteristics
of a market. We focus on those characteristics which effect the nature of competition and
pricing. The concept of market structure is therefore understood as those characteristics
of a market that influence the behaviour and results of those firms that working on that
market. The main aspects that determine the market structures are: the number agents in
the market both buyers and seller; their relative negotiation strength; in terms of ability to
set prices; the degree of concentration among them; the degree of differentiation and
uniqueness of products; the ease of entry and exits in the market. There four basic and
popular type of market which are exist in real life. Such as, (
1.Perfect competition: Many buyers and sellers, all sellers are price taker, identical
products, free entry and exit
2. Monopolistic competition: Many buyers and sellers, differentiate products.
3. Oligopoly: a few large sellers, price control power, high entry barrier.
4. Monopoly: a single seller, control over price and supply, entry is quite impossible.
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Perfect competition
Perfect competition is characterized by many buyers and sellers. All the sellers sell
identical product. Because of many sellers no one ca influence the market price or
quantity. Price and quantity are determined by demand and supply. In this market buyers
are aware of about market. So, it is difficult to charge a higher price, if seller charge
higher price he will lost consumers because consumers know market price and will move
to another seller. Firms in competitive market produce socially optimal quantity at lowest
cost. There is no barriers to entry in the market. Thus, producers in a perfectly
competitive market are subject to the prices determined by the market and do not have
any leverage. For example, in a perfectly competitive market if a
single firm decides to increase its selling price of a good the
consumers can just move towards the nearest competitor for a
better price. causing the firm that increases its prices, to lose
market share and profits.
Real life example in Bangladesh: A Bangladeshi vegetable
market might be an example of Perfect Competition (though real
"perfect competition" doesn't really exist). At the vegetable market, lots of sellers gather
together to try to sell the same wares, and lots of customers try to buy them with a good
knowledge of what they are buying. There is little to prevent someone from joining in on
the selling or quitting the market altogether. If one single seller changes the price it would
not affect the market as a whole therefore more or less a single price prevails throughout
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the market for a specific vegetable, There is no barrier to enter or exit the market
therefore anyone could enter into and leave from the market at any time.

Monopolistic Competition
Monopolistic competition is a form of market structure in which there are a large number
of firms that are selling similar but differentiated (by branding or quality) products to the
consumers and therefore are not perfect substitutes. Firms operating under monopolistic
competition usually have to engage in advertising. Firms are often in fierce competition
with other firms and may need to advertise aggressively to let customers know their
differences. Since each monopolistically competitive firm makes a unique product, it is
the price market and can charge a higher or lower price than its rivals. There are a few
barriers to entry for the new entrants in the market which distinguishes it from monopoly
Real life example in Bangladesh: Restaurants in Bangladesh is an example of
Monopolistic competitive industry. Every restaurant
make their own decisions about pricing and output,
consumers might have knowledge about the
restaurants but cannot be sure about it being perfect
matching the knowledge until he/she dines in the
restaurant. There is freedom to enter or exit the market
as there are a large number of businesses in this
industry. Restaurants are often in competition with
each other offering a similar product or service, and
may need to advertise on a local basis, to let customers
know their differences. In the short run super normal
profits maybe possible, but in the long run new similar
restaurants would be attracted towards the industry, because of low barriers to entry, good
knowledge and an opportunity to differentiate. Other examples of monopolistic
competition include the banking, tobacco, saloons, beauty parlour industry etc.

Oligopoly
Oligopoly is the form of market structure where there are only a few firms that make up
an industry. This group of firms has control over the price and like monopoly; an
oligopoly has high barriers to entry. The products that the oligopolistic firms produce are
often nearly identical and therefore the companies which are competing for market share
are interdependent as a result of market forces. For example let us assume that an
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economy needs only 1000 products. Company A produces 500 and its competitor
Company B produces the other 500. The prices of the two brands will be interdependent
and therefore similar. So if Company X starts selling the product at a lower price, it will
get a greater market share thereby forcing Company Y to lower its prices as well.
Real life example in Bangladesh: Telecom industry of Bangladesh is Oligopoly.
There are only a few companies in Bangladesh operating in this
sector therefore even a slight change in pricing of one company retain
their market share. There is a sense of interdependence in this
industry the companies give identical services like same features with
almost the same input. New companies can enter the industry but that
would be very tough.

Monopoly
Monopoly is a market structure in which there is only one producer or seller for a
product. In other words, the single business is the
industry and as a result there are no close substitutes for
the monopolist's market offering. Entry into such a
market is restricted due to high costs or other factors
which may be economic, social or political. Another
reason for the barriers against entry into a monopolistic
industry is that oftentimes one entity has the exclusive
rights to a natural resource. For example, a government
can create a monopoly over an industry that it wants to
control, such as electricity, water and other utility services. Therefore the one in
monopoly is the price maker. The price of the commodity is decided by the monopolist.
However the general perception is that the marginal revenue should be equal to the
marginal cost.
Real life example in Bangladesh: In the context of Bangladesh there are a large
number of sectors which can be characterized as monopoly market structure. These are
Water supply (WASA), Railways, Electricity supply ete. For the purpose of this report the
railways will be discussed. Firstly railway service in
Bangladesh. has the monopoly in the market because of
the support of the government. Thus there is single
seller in the market for the services. Secondly the price
maker for the railways is the government. Thus the
government decides what the prices are to be set.
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Railways have their own segment in the transportation thus it does not have any close
substitutes when the prices and facilities are to be considered. Thus the railways are not
having any close substitutes. Lastly the entry is restricted. There can be nо competition to
the railways in Bangladesh. The new entrants are not allowed. This is because if the
government loses control over this segment the public might be exploited. Thus to protect
the public from increased burden of fares the government has maintained monopoly of
railways by having full control over it and not allowing new entrants in the market.

References
1. Microeconomics, RobeRt S. Pindyck and daniel L Rubinfeld
2. Wikipedia, Market Structure, 27 April 2004.