ECONOMICS MARKET STRUCTURE MARKET STRUCTURE -ASHA.V

DEFINITION A market means a group of firms supplying products that buyers consider to be substitutes. A market may be created if only buyers and sellers come in contact with one another and agree to buy and sell. It consists of buyers, sellers and middlemen making exchanges with one another.

Classification of Determinants of Market Structure The determinants of market structure are classified into the following categories: 1) Number of Independent Firms When the number of independent sellers is large, the proportion of total supply controlled by any single seller is quite small and insignificant. The larger the number of independent firms in a market, the greater is the degree of competition and the degree of competition decreases as the number of firms becomes smaller. The number of firms in an industry are classified into the following four categories:  Large  Few  Two  One

2) Degree of Seller Concentration When the total supply of a product is concentrated in the hands of a few big sellers,each of these sellers has the power to influence price even though the total number of firms may be large. But no single firm can influence the price when market share of all firms are equal. The broad categories used for classifying the degree of seller concentration in any industry are:  Non-existent  Low  Medium  High

3) Product Differentiation Products competing in a market are considered differentiated if the buyers do not regard them as identical or homogeneous or perfectly substitutable. The following categories are generally used to classify the degree of product differentiation:  Homogeneous or Perfect substitutes.  Close substitutes or Slightly differentiated products sold under different brand names. E.g.: Colgate, close up  Different products satisfying the same want i.e. tea or coffee, radio and television etc  No substitutes i.e. milk, salt etc

4) Condition of Entry (Barriers) Condition of entry means the difficulty or ease with which a new firm can enter an industry or market. The three categories for classifying conditions of entry are:  Free or easy entry  Difficult entry but not impossible  Entry impossible or prohibited by law

2) Monopolistic Competition Number of independent firms: Large Seller concentration: Non-existent or low. Product differentiation: Slight. Products are close substitutes. Condition of entry: Free or easy Models of Market Structure 1)Perfect or Pure Competition Number of independent sellers: Large Seller concentration: Non-existent. All firms have insignificant and nearly equal market share. Product differentiation: Non-existent. Homogeneous products. Condition of entry: Free or easy

3) Oligopoly Number of independent firms: Few Seller concentration: Medium or high. Product differentiation: Non-existent or slight. Products may be homogeneous or close substitutes. Condition of entry: Difficult.

4) Duopoly Number of independent firms: Two Seller concentration: High. Product differentiation: Non-existent or slight. Products may be homogeneous or close substitutes. Condition of entry: Very difficult or impossible. Hence two sellers continue to control the market even in the long run.

5) Monopoly Number of sellers: one Seller concentration: Very high. One seller controlling almost 100 per cent of total supply. Product differentiation: Doesn’t exist because there are no competing firms and products. Condition of entry: Barred or impossible.

CONCLUSION An attempt to identify the various market structures in the Indian market Monopoly : Defence, Railways Duopoly : CDMA service (Tata Indicom & Reliance) Reliance) Oligopoly : Petrol & Diesel ( BP, HP, IOC, IBP, Reliance) Reliance) Monopolistic Competition: FMCG products (Soaps) Perfect Competition : Idealistic – No real market exists. exists.

Reference:  Microeconomics for management students- RAVINDRA H.DHOLAKIA AJAY N.OZA  Managerial Economics- A.VINOD