Market Structure the characteristics of the market either

Market Structure the characteristics of the market either organizational or competitive, that describes the nature of competition and the pricing policy followed in the market.

Market Structures – Key Terms Barriers to entry are the economic term describing the existence of obstacles that prevent new competitors from easily entering an industry or area of business. (1) resource ownership (2) patents and copyrights (3) government restrictions (4) high start-up cost. (5) brand loyalty

Market Structures-Key Terms Control Over Pricing - Your price environment determines the level of control you have over competitive pricing. Price environments are market-controlled, company -controlled or government regulated. Example: A market-controlled environment shows a higher level of competition and similar products and little price control by individual companies.

Market Structures – Key Terms Number of Sellers: Describes how much competition exists Variety of Products: How much product differentiation exists between competitors

Highly Competitive Markets Intro: Highly competitive markets provide consumers with a wide range of products that are priced lower. Supply/Demand determine what products are produced and available. Two types of highly competitive markets: • • Perfect competition Monopolistic competition

Perfect Competition—is an ideal market structure in which buyers and sellers each compete directly and fully under the laws of supply and demand. Nothing prevents competition No one buyer/seller controls demand, supply, or prices.

Perfect Competition 1. 2. 3. 4. Perfect Competition exists when: Many sellers act independently. Sellers offer identical products (No variety) Sellers can enter or exit the market easily (No barriers to entry). No control over pricing (must offer the same or lower price than competitors) Most efficient market structure

Perfect Competition Many Sellers—No one seller has enough power to control the market. Identical/No Variety Products— Buyers make purchasing decisions by comparing “apples to apples. ” Buyers choose a product based on price, not on unique characteristics.

Perfect Competition Barriers to Entry – None Easy Market Entry and Exit—The freedom to switch from market to market helps insure no one can dominate market.

Perfect Competition No Control over pricing Because firms make identical products, they are solely competing on the basis of price. They are forced to maximum efficiency in order to offer the lowest price.

Monopolistic Competition—Differs from perfect competition in one key aspect—sellers offer different rather than identical products. Each firm seeks this in order to sell unique product. This is more common than perfect competition.

Monopolistic Competition 1. 2. 3. 4. Monopolistic Competition exists when: Many sellers act independently. Sellers offer differentiated products (a lot variety) Sellers can enter or exit the market easily (Little barriers to entry). Some control over pricing (strategic pricing)

Monopolistic Competition Similarities between Perfect and Monopolistic competition: Both compete under same laws of supply and demand. Both systems feature many buyers/sellers acting independently.

Monopolistic Competition Product Differentiation—Sellers point out differences between their products and those of their competition (some variety) Non-Price Competition—Sellers compete on a basis other than price. Why? 1. 2. 3. 4. Physical characteristics Location Service level Advertising

Monopolistic Competition Profits—The main goal of sellers; By setting its product apart from the competition and convincing buyers to base their decisions on non-price factors. Therefore: A seller a has little control over pricing

Monopolistic Competition None - Low Barriers to entry No patents (due to patent expiration), extreme product differentiation, and too many competitors for any one to dominate market share