Dr Nisha Tatkar

M.Com, MBA (Finance),UGC

NET, Ph.d (Banking & Finance)
• One Area:- Denote to a area or a region in which no of
buyers and sellers are scattered. They are connected with one
another via brokers, agents, letters. Etc.
• Buyers and Sellers:- Buyers and Sellers are must for
market. In Transaction Physical Presence is not necessary.
• One Commodity:- For the existence of a market there
should be at least one commodity like Wheat, vegetables, etc
and the market is termed as wheat market, vegetables
market and so on.
• CONT…
• Perfect Competition:- Acc to
Prof. Coornot, market must posses
the characteristic of perfect
competition where in buyers and
sellers are free to enter in the
market.
• One Price:- In Perfect
competition between buyers and
sellers. The market area should
have one price only.
The Size and extent of market is affected by the
following factors:-
1. Characterics of commodity:-
a. Nature of Demand
b. Durability
c. Portability
d. Sampling and grading of goods.
e. Adequate Supply
f. Substitutes.
g. Multi Uses.
1. Local Market- When buyers and sellers are limited to
an area or region then the market is called local market.
2. Regional Market- When buyers and sellers are
concentrated to a certain region/area. The area is wide
then the local market.
3. National Market- When the demand of a commodity
is limited the boundary of the country.Eg. Market of
Gandhi cap , Nehru Cap.
4. International Market- When the demand of a
commodity crosses the boundary of a country.
1. Very Short- Supply of a Good is limited. Cannot
increase the supply. Demand determines the price of
such commodities.
2. Short Period- Production can be increased. Demand
plays an important role in price determination.
3. Long Period- Supply can be adjusted to the quantity
demanded. Supply plays an imp role in price deter. Also
called Normal Price.
4. Very long- Both demand and supply can be changed.
Demand Inc with the inc in tastes, habits, fashion etc. and
Supply inc with the inc in variable inputs.
• Perfect Market- Where there is
Homogeneous products. Free Entry and
exit from market of a firm. Perfect
knowledge of market condition, and
perfect mobility of factors of
production.
• Imperfect- Where perfect competition
is not in existence. Number of buyers
and sellers are small. No perfect
Knowledge of market conditions. There
is no single price in this market.
• Mixed/General market- Where all types of good are
bought and sold. Found in cities.
• Specialized market- Where particular commodity is
sold, e.g. vegetables, food grains cloths etc.
• Marketing by Samples- When goods are bought and
sold on the basis of samples. E.g. Oil seeds, raw cotton.
• Marketing by grades- When the goods are graded
then different buyers and sellers deal in such goods on
the basis of their grades.
• Product Market- Where particular
product is bought and sold. E.g. Agri
product sold in agri market (krishi
Mandi).
• Stock Market- Market where stock
and shares, bond, securities
debentures etc are bought and sold.
• Bullion Market- Market where Silver
and Gold are bought and sold. In this
market metallic trading takes place.
• Legal Market- Where legal Transactions of
goods and services take place. Recognized by
the Govt. Also called fair market.

• Illegal market- Where high prices are

charged what have been fixed by the Govt.
Happens when supply is short. Business earn
profits by indulging in Black Marketing,
Smuggling. Hongkong market is an illigal
market.
• What happens in a competitive environment?
– New idea? – firm makes short term abnormal profit
– Other firms enter the industry to take advantage of
abnormal profit
– Supply increases – price falls
– Long run – normal profit made
– Choice for consumer
– Price sufficient for normal profit to be made but no more!
 Perfect Competition
1. All firms sell an identical product.
2. All firms are price takers.
3. All firms have a relatively small market share.
4. Buyers know the nature of the product being sold
and the prices charged by each firm.
5. The industry is characterized by freedom of entry
and exit.
It is also referred as “PURE COMPETITION”.
• Potatoes • Potatoes are sold in
markets where all
vendors sell
homogenous products
at homogeneous prices.
• In this market there are small no of firms.
Having Large no. of buyers and sellers
with product differentiation.
• 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.
• Pure monopoly – Industry is the firm!
• Actual monopoly – where firm has >25%
market share
• Natural Monopoly – high fixed costs – gas,
electricity, water, telecommunications, rail
– High barriers to entry
– Firm controls price (output/supply)
– Abnormal profits in long run
– Possibility of price discrimination
– Consumer choice limited
– Prices in excess of MC
• Advantages and disadvantages of monopoly:
• Advantages:
– May be appropriate if natural monopoly
– Encourages R&D
– Encourages innovation
– Development of some products not likely without some
guarantee of monopoly in production
– Economies of scale can be gained – consumer may benefit
• Disadvantages:
– Exploitation of consumer – higher prices
– Potential for supply to be limited - less choice
– Potential for inefficiency –
X-inefficiency – complacency over
controls on costs
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.
• 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.
• Imperfect or Monopolistic Competition
– Many buyers and sellers
– Products differentiated
– Relatively free entry and exit
– Each firm may have a tiny ‘monopoly’ because of the
differentiation of their product
– Firm has some control over price
– Examples – restaurants, professions – solicitors, etc.,
building firms – plasterers, plumbers, etc.
Shoes • 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.
• Different company’s shoes
can be easily differentiated
and despite differentiation
each product remains close
substitute for the rival
product.
• There is no pure
competition
• Shoes come under
monopolistic competition
because there are many
producers and consumers
choose according to the
brand, quality, location,
trademark, design,
colour, packaging, etc.
and not on the basis of
price only.
Perfect Competition Monopolistic Competition

• Homogenous Product • Differentiated products

• Price is equal to marginal • Price is greater than
cost under this market. marginal cost
• Optimum output is • Output produced is less
produced. than marginal cost.
• No Excess capacity and no • Excess capacity exists
wastage of resources. • Product differentiation is
• No scope for product one of the important
differentiation. features.
• Selling cost is irrelevant. • Selling cost plays a crucial
role .
• A situation in which two companies own all or
nearly all of the market for a given product or
service.
• It is a specific type of oligopoly where only two
producers exist in one market. In reality, this
definition is generally used where only two firms
have dominant control over a market.
• In the field of industrial organization, it is the
most commonly studied form of oligopoly due to
its simplicity.
• Duopoly:
• Industry dominated by two large firms
• Possibility of price leader emerging – rival will
follow price leaders pricing decisions
• High barriers to entry
• Abnormal profits likely
Pepsi and Coca-Cola in • In the market Pepsi and
soft drinks Coca-Cola rule in soft
drinks. So they come
under Duopoly.
• Other soft drinks are
also there bur these
two companies cover
large share in soft
drinks market.
• It is a situation in which a particular market is controlled
by a small group of firms.
• An oligopoly is a market form in which a market or
industry is dominated by a small number of sellers
(oligopolists). Because there are few sellers, each
oligopolist is likely to be aware of the actions of the
others.
• The decisions of one firm influence, and are influenced
by, the decisions of other firms.
– Industry dominated by small number of large firms
– Many firms may make up the industry
– High barriers to entry
– Products could be highly differentiated – branding or homogenous
– Non–price competition
– Price stability within the market - kinked demand curve?
– Potential for collusion?
– Abnormal profits
– High degree of interdependence between firms
• Cable Television Services
• Entertainment Industries (Music and Film)
• Airline Industry
• Mass Media
• Pharmaceuticals
• Cellular Phone Services
• Smart Phone and Computer Operating Systems
• Aluminum and Steel
• Oil and Gas
• Auto Industry
•
Maggi noodles, Sunfeast • These companies produce
yippee magic noodles, instant noodles.
Horlicks foodles, Knorr • Earlier Maggi used to enjoy
soupy noodles. monopoly in this sector but
with the entry of the other
three companies Maggi
now comes in oligopoly.
• These four companies
majorly rule the market in
instant noodles so they
come in oligopoly.
• Measuring Oligopoly:
• Concentration ratio – the proportion of market
share accounted for by top X number of firms:
– E.g. 5 firm concentration ratio of 80% - means top 5 five
firms account for 80% of market share
– 3 firm CR of 72% - top 3 firms account for 72% of market
share
Monopoly Oligopoly

• One seller sells his • Few firms in the market

distinctive product and that sells either
dominates the entire homogeneous or
market. differentiated product and
• Competition does not exist. compete in the market.
• High prices are charged. • Little Competition but close
• Demand of consumers for one
the product will be the basis • Fair prices are charged.
of setting price. • Competitors prices will be
the basis of setting price
Features of the four market structures