Economics Project Joey Siu Kitty Lee Michelle Leung Annie Choi Vicky Law

Market & Market Structure  Market : Any arrangement that enables buyers and sellers to contact for transactions.  Market contents 2 kinds of competition : 1) Price competition 2) Non-price competition  The relationship among sellers is called the Marker Structure of the sellers.

Price competition  Seller competes among each other by sitting a lower price. Non-price competition  Sellers competes in area like product quality,advertising, packaging and service other than price.

Market structure  There are 2 types of Market Structure: 1) Perfect Competition 2)Imperfect Competition 1)Perfect Competition  Homogenous Products: The goods are sold by different sellers as exactly alike from the consumers regard.

Free entry and exit:  Firms are free to enter or leave the market. They do not face restriction on competing with other sellers.

Perfect Information:  All the buyers and sellers know the aspects of the market, including price, quality and quantity of the good  Market information such as new design and latest technology are available.

Individual sellers have no influence on the market:  In a perfectly competitive market, there are many buyers and sellers, since all the buyers and sellers know the aspects of the market, goods are homogenous, so no individual seller can affect the market price, because his output just takes up a little part of the whole market output.

2) Imperfect Competition  Monopoly  Oligopoly  Monopolistic Competition

Monopoly  Entry is completely blocked: only 1 producer in the market and no entry in monopoly. For example: Ng Fung Hong Limited, which the largest & leading supplier of fresh, live and frozen foodstuffs in HK.

 Monopolists may sell homogeneous or heterogeneous goods: The goods or services sold by a monopolist may be homogeneous. For example, the gas provided by Towngas is the same for all consumers. A monopolist may also sell heterogeneous goods or services. For example, the Caltex Oil HK Limited provides different types of oil for different types of car.

 Information of the market is imperfect: No perfect information in the market. Neither the sellers nor buyers know all aspects of the market.

Some behavior of a monopolist  The monopolist is a price searcher: A monopolist faces the entire market demand. He needs to find out the price that he can earn the most and sell most of its product.

 Non-price competition: Although monopolists don ’ t face direct competition,they still need to compete with sellers selling close substitutes. Non-price techniques likes advertising and quality improvement are used.

How are monopolies formed  By government franchise: When the government grants a franchise to a firm to operate as the only producer of a good, a franchised monopoly is created. Like the free TV programs produced by TVB and ATV

 By patent and copyright: When a producer has invented a new product, he can apply to the government for a patent. It gives him the exclusive rights to use his new product for a certain period, within this period, nobody can use his new product without his green light. Copyrights give writers, composers and artists exclusive rights over their ideas for a certain period.

 Huge capital requirement and economies of scale : The firm needs to produce a huge output to enjoy the benefits of economics of scale. After it has fully established itself, == it ’ s average cost of production is lower than the potential competitors. == it ’ s output may be very big and so it can satisfy the entire market demand. As a result, other firms will be discouraged or give up from entering the market. It called natural monopoly. Example: MTR

 Limited market demand: A monopoly may rise due to limited market demand.  Possession of superior raw materials: A monopoly may also be the result of a firm possessing superior raw materials.  By integration: A monopoly can also be formed by mergers and consolidations, Firms in the same industry may combine together unit finally only 1 firm remains.

Oligopoly  Oligopoly – market is dominated by several sellers  Duopoly – there are only 2 sellers Features of an oligopoly :  Imperfect information of the market, neither sellers nor consumers are fully aware of the cost, price, quality and quantity sold by different sellers.  Several dominant sellers, in an oligopolists market a large share of the market demand is satisfied by several major firms.  Sellers are interdependent, oligopolists will consider their competitors ’ responses in deciding their business.

 Oligopolists sell heterogeneous or homogeneous goods: For example: The Coca Cola Company sell Bonaqua Mineralized Water and Coca Cola Soft Drink. It ’ s products are homogeneous. PARK nSHOP ’ s product line Best Buy produce Plain Flour, sugar or spaghetti. It ’ s products are heterogeneous.

 Entry is restricted or difficult: - The existing firms are well-established, the oligopolists enjoy the benefits of economies of scale, new firm have to pay a huge cost when competing with the existing firms. - The existing firms have already built up their names and gained customers ’ good will. New firms need to advertise heavily to compete with the existing firms.  The government may set up rules to govern entry.

 Oligopolists are price searchers: They need to search for the particular price that maximizes profits.  The possibility of a ‘ price war ’ : oligopolistic sellers are interdependent. If 1 seller lowers its price to attract more business, other sellers will follow. A price war will break out, and some sellers may go out of business. Some behaviour of firms under oligopoly

 Price leadership: The dominant sellers may act as an leaders in initiating changes in price, the smaller firm will follow.  Non – price competition: Sellers often engage in non-price competition to promote their product. For example, banks give some gifts to the customers who take up their credit card services.

Monopolistic Competition Features of both perfect competition and monopoly are present.  Similar features to perfect competition - A large no. of sellers and buyers. For example, thousands of hair salons, boutiques in HK. - Free entry and exit. New firms have to compete with existing firms for business.

 Different features from perfect competition - The goods sold are heterogeneous : The product sold by different sellers as different. The differentiation may rise from differences in quality, package design, advertisements, etc. - Imperfect information of the market : Neither the sellers nor buyers know all aspect of the market.

Some behaviour of firm under monopolistic competition  Monopolistic competition are price searchers They need to search for the particular price that maximizes profits.  Non – price competition: For example, advertising, offering gifts and organizing lucky.

END