MARKET STRUCTURES.pptx

Factors determining the degree of competition and market power

1. Demand is the willingness and paying capacity of a buyer at a specific price.   On the other hand, Supply is the quantity offered by the producers to its customers at a specific price . While the demand curve is downward to the right, the supply curve is upward to the right.

2. In the previous lessons, WE already understand the concept of demand and supply as well as having equilibrium price and quantity as an agreement between the sellers and the buyers. All these basic principles are assumptions in market economy where free trading exists. In this week lessons, you will learn more about the concepts of demand and supply which are also related to different structures of market depending on the different degrees of competition in which firms operate.

3. Why are there products that have the same function but differ in prices in the market?

4. It is important to note that competition is described as rival system among several market suppliers”. “So we say that a market is any venue where trading of goods and services happens, thus, it is composed of various suppliers who compete to offer their goods to the customers who use their buying power to acquire different products in the market”.

5. MARKET STRUCTURES

6. “Market structures” refer to the different market characteristics that determine relations between sellers to each another, of sellers to buyers and more. Market structure describes the economic environment of an industry in which buyers and sellers operate. Therefore, it presents the essential features and classification of market according to market power.

7. FACTORS DETERMINING THE DEGREE OF COMPETITION AND MARKET POWER: ➢ Number and size of buyers and sellers ➢ “Type of products” ➢ Entry and exit of firms in the market ➢ “Pricing power” ➢ Degree of knowledge of economic agents regarding prices, costs, demand and supply condition Let us first define each of the factors that determine the competition level in the marketplace”.

8. Number and size of buyers and sellers It determines the market concentration. Having more suppliers and sellers in the market signifies less concentrated market ; whereas fewer producers indicates a more concentrated market. This market concentration also determines the market power of the firms.

9. Type of Product It refers to the ability of the company to develop a market niche through different methods of differentiating the goods and services (making the product unique). Products could be: Homogenous – undifferentiated or same products Niche – differentiated or unique products

10. Entry or Exit of firms in the market This refers to the strength of barriers that may hinder the entry of firms or suppliers in the market. Kinds of Barriers to Entry: Scale Barriers – “refers to requirements for a large production plant for a feasible operation in the industry” Legal Barriers – “refers to proprietary rights and their corresponding legal protection extended to existing market players in the production and distribution of products”

11. Pricing Power This also refers to the market power of the firm or the ability to set or control the price of products in the market. The level of pricing power depends on whether the firm can regulate the level of demand and supply of the products. If the producers can manipulate the level of supply or demand, then they are said to be price-setters . If the producers cannot control the level of supply or demand, then they are price-takers for they only have little pricing power.”

12. Degree of knowledge of economic agents This refers to the availability or limitation of economic information to the players in the market like price, costs of materials, demand level and supply conditions. In real life, we can see that there is unevenness in the distribution of information among the actors in the market (household and firms).