Market Structures: Fundamentals

Market Structures: Fundamentals

1. Number of Sellers

   • many sellers
     • small market share
     • negligible impact
     • unable to reap IEOS
     • little influence over rival's actions
   • few sellers
     • large market share
     • significant effects on market
     • can reap IEOS
     • great influence over rival's actions

2. Nature of Product

   • homogeneous
     • identical
     • have many perfect subs
     • buyers are indifferent
     • tough competition
     • harder to raise price
   • differentiated
     • no perfect subs
     • buyers believe that there's a difference between products
     • gives firms monopoly power

3. Barriers to entry

   • obstacles that prevent new competitors from competing on an equal basis with established firms in an industry
   • natural
     • incumbent firm experiencing EOS
       • lowers average cost through increased production
     • High Sunk Costs
       • costs that cannot be recovered
         • eg. advertising, marketing, research
     • Natural Monopoly: Small market size
     • High fixed costs
       • discourages less financially able firms from entering due to high capital requirements
   • artificial
     • exclusive ownership/control of specific factors
     • exclusive legal rights
       • patents
       • copyrights
       • govt franchises and licences
     • predatory pricing
     • strong brand name
     • cartel
   • degree
     • no/low
       • very competitive market
       • only earn normal profits
     • high/very high
       • greater market power
       • earn supernormal profits

4. competition

   • price
     • discourages entry of potential firms
     • affects level of total revenue
   • non-price
     • product development
       • produce a good that's different from rival's
     • product promotion
       • product not modified
     • able to lower price elasticity
     • raises demand
     • advertisement
       • informative
       • persuasive
       • support
         • helps make better decisions
         • promotes competition
         • increase employment
         • keep prices down for media g/s
       • against
         • could be misleading
         • firms may grow to be monopolies
         • higher costs passed on to consumers
         • demand remains relatively unchanged

5. understanding

   • differences between firms and industry
   • time period
   • players in market
   • identifying market structure
   • behaviour of firms and impacts

6. refers to different forms/features that may affect behaviour and performance of firms in a market