Comparison Between Market Structures

Only available on StudyMode
  • Download(s) : 174
  • Published : January 18, 2012
Open Document
Text Preview
A COMPARATIVE STUDY OF MARKET STRUCTURES
Perfect Competition No. of Firms A large number, each being small. Monopolistic Competition A large number, each have some amount of market power. Oligopoly A small number, each being mutually interdependent. Monopoly Only one firm, possessing full control in the market.

Size of Firms

Small. Therefore each is a price taker.

Relatively small but possessing some ability in setting price.

Relatively big but bases its decision on other firms.

Very large and is able to influence price or output but not both simultaneously.

Nature of Product

Homogeneous

Differentiated

Differentiated

Unique

Knowledge of Product

Perfect knowledge of market by buyers and sellers

Imperfect knowledge of market by buyers and sellers

Imperfect knowledge of market by buyers and sellers

Imperfect knowledge of market by buyers and sellers

Barriers

Free entry and exit from industry

Free entry and exit from industry

Barriers of entry and exit from industry

Barriers of entry and exit from industry

Mobility of Factors

Perfect Mobility

Perfect Mobility

Imperfect Mobility

Imperfect Mobility

Extent of Price Control/Pricing Policy

None by individual firms who take the market prevailing price

Firms may either set price or output, constrained by its demand curve

Firms may either set price or output, constrained by the actions of rival firms

Firms may either set price or output, constrained by its demand curve

Non-price Competition

No advertising or other forms of promotion because of perfect competition • Perfectly price elastic – each firm is a price taker because of all the above conditions • D=P=AR=MR • Price is constant at all levels of output • The industry’s demand and supply determine the market price

Advertising and other forms of promotion may take place

Advertising and other forms of promotion may take place because of price rigidity • Kinked demand curve – price rigidity exists because of all the above conditions • D=AR and AR>MR • The oligoplistic firm determines the market price or output, taking into account its competitor’s reaction

No advertising or other forms of promotion because of the absence of competition • Relatively price inelastic – firm is a price setter because of all the above conditions • D=AR and AR>MR • The monopolist determines the market price or output but not both simultaneously because it is constrained by the demand curve

Demand Curve/Price Line/AR curve

• Relatively price elastic – each firm has some ability to set price because of all the above conditions • D=AR and AR>MR • The monopolistically competitive firm determines the market price or output but not both simultaneously because it is constrained by the demand curve

1

Perfect Competition
Relationship between the demand curves of the Firm and Industry Price Price S P2 D1 D2 D0 P0 P1 AR2 AR0 AR1

Monopolistic Competition
Demand Curve of the Firm $

Oligopoly
Demand Curve of the Firm $

Monopoly
Demand Curve of the Firm / Industry $

P2 P0 P1

MR Quantity Firm Quantity

AR=DD Quantity

MR

AR=DD Quantity

MR

AR=DD Quantity

Q1 Q0 Q2 Industry

TR Curve

• TR = P x Q • Because P is constant, TR curve is a linear upward-sloping from left to right Revenue Curves under Perfect Competition $ $ 60 TR

• TR = P x Q • Because P falls when Q rises, TR curve is an inverted U-shape Revenue Curves under Monopolistic Competition $

• TR = P x Q • Because P falls when Q rises, TR curve is an inverted U-shape Revenue Curves under Oligopoly $

• TR = P x Q • Because P falls when Q rises, TR curve is an inverted U-shape Revenue Curves under Monopoly $

10

AR=MR=DD AR=DD Quantity $ AR=DD Quantity

MR Quantity 6 Quantity $

MR

AR=DD Quantity $

MR

TR Quantity

TR Quantity

TR Quantity

MR Curve

• Identical to P and AR, that is, D=P=AR=MR • Constant

• MR is less than AR,...
tracking img