4️⃣
Market
meaning of market:
1. Market refers to the whole area where buyers and
sellers of a commodity are in competition with each
other to effect the purchase and sale of the
commodity
2. there is one market for every product or service
types of market structure (on basis of
degree of competition)
Perfect competition
monopoly
monopolistic competition
monopsony
Meaning of different types of markets
perfect competition monopoly
the word monopoly is
is a large market situation composed of two words a)
where a large number of mono which means single
buyers and sellers selling and b) poly which means
identical products . the seller. thus monopoly
Market 1
commodity is sold at a refers to a market situation
uniformed price in the where there is only one
market. single seller.
Market 2
price is given to every buyers have no option
buyer and seller . but to purchase the
commodity from that
no individual buyer or
seller is in the seller or go without it.
there are no close
position to influence
substitutes for the
the prevailing price of
the commodity . goods sold by the
single seller . thus the
the seller can sell any
seller/firm is the price
amount of output at maker. the distinction
the prevailing market
between firm and
price . monopoly disappears
therefore seller is the example Indian
the price taker
railways
summary
Perfect summary
competition is a
A monopoly is
market situation
with many buyers a market
situation where
and sellers
offering identical there is only one
seller, meaning
products at a
uniform price. No buyers must
purchase from
individual buyer
or seller can that seller or go
without. There
influence the
market price, are no close
making sellers substitutes for
price takers who the goods sold,
making the seller
Market 3
can sell any the price maker.
amount at the An example is
prevailing price. Indian Railways.
monopolistic monopsony
competition the word monopsony is
is a market situation where derived from the Greek
a large number of small language. it is the sum of
sellers selling closely two words - mono; single
related goods but surely and psony; buyer. thus ,
not homogeneous(identical monopsony refers to a
goods) . product market where there is a
differentiation is a key single buyer of a
feature of monopolistic commodity or service but
competition there are many sellers.
Market 4
monopolistic it implies a situation in
competition market is where there is a
a blend of both monopsony-
perfect competition a. consumers of a
and monopoly certain commodity are
market. organized
features of perfect b. when a certain
competition ; large no individual happens to
.of firms , no barriers have a taste for some
to entry or exit commodity which no
features of monopoly one else requires
market; product c. it may also happen
differentiation and when a single factory
close substitutes but is in an isolated
not perfect locality is the sole
substitutes buyer of some
commodity from
summary
different firms.
Monopolistic
competition is a summary
market situation Monopsony,
with many small derived from
sellers offering Greek words
closely related but meaning "single
not identical buyer," refers to a
goods, market with one
characterized by buyer and many
product sellers. It can
differentiation. It occur when
blends features of consumers are
Market 5
perfect organized, when
competition (many an individual
firms, no barriers uniquely desires a
to entry or exit) commodity, or
and monopoly when a single
(product factory in an
differentiation and isolated area is the
close substitutes). sole buyer from
various firms.
Features/ characteristics monopoly
/necessary conditions for (i) Single Seller and large
each market number of buyers:
Under monopoly, there is
Perfect competition
only one seller or firm or
i)There are a large number manufacturer of a
of buyers and sellers [ of commodity. The products
the commodity sold by the monopolist may
The number of sellers and or may not be
buyers is so large that none homogenous.
can influence the market The existence of single
price alone. Each seller's or seller of one product
buyer's share in the total eliminates the difference
market is insignificant. This between the firm and the
means neither can industry.
influence the price by There can be any number
changing their supply or of buyers under monopoly.
demand. Sellers and buyers (ii) No Close Substitutes: A
are thus price-takers, able second feature of
to sell or buy as much as
Market 6
they want at the market monopoly is that there are
price without constraints. no close substitutes
available of the product
For example, millions of
sold by the monopolist. A
farmers produce wheat,
pure monopoly exists only
and millions of consumers
when there is no close
buy it. Neither group can
control the wheat market or substitute of the products
its price alone. This sold by the monopolist.
condition is crucial for a Indian railways is another
example of monopoly.
perfectly competitive
market.
Examples: There are no
(ii) Homogeneous Products: close substitutes available
Secondly, under perfect for electricity provided by
Haryana State Electricity
competition, all sellers sell
Board. However, electricity
completely identical (or
may only have remote
homogeneous) goods.
substitutes like generator
Homogeneous products
refer to those products iii) Restriction on the Entry
which are identical in of New Firms: Under
quality, shape, size, colour, monopoly, new firms
design, packing, etc. They cannot enter the industry.
are identical in the eyes of There are strong barriers
their buyers. Thus, buyers that prevent new firms to
have no bias towards any enter the industry. These
particular seller. They find barriers may take several
no reason to prefer the forms such as patent rights
product of one seller to the government license,
product of another seller. economies of scale etc.
Since the product sold by Thus, a monopolist faces
Market 7
the sellers is identical, no no competition and earns
seller can raise the price of abnormal profit in the long
his product. If he does so, run.
he will lose all his
iv) Firm is a Price-
customers. Nor will anyone
Maker: Due to strong
sell the product at a price
barriers to the entry of
lower than the market
new firms into the
price. Why should anyone
industry, the monopoly
sell at a lower price, when
firm has full control over
he can sell at a higher
the supply of its product.
price? It is because of this
Therefore, it has full
feature that firms are able
control over its price also.
to earn only normal profits.
It can influence the
market price by varying
(iii) Free Entry and Exit of its supply:
Firms: The third (v) Price Discrimination:
characteristic of perfect The act of selling the
competition is that there is same product at different
absolutely no restriction on prices to different buyers
entry of new firms in the is known as price-
industry or the exit of old discrimination. A
firms from the industry. It is monopolist can charge
because of this feature different prices from his
firms are able to earn different buyers easily. If a
normal profits only in the monopolist adopts a
long run. policy of price-
discrimination, the
(iv) Perfect Knowledge: situation is called
Fourthly, buyers and sellers discriminating monopoly.
both have perfect Example: (a) Indian
Market 8
knowledge about the Railways charge lower
prevailing market fares from senior citizens
conditions. For example, of the country as
sellers are aware of the compared to other
prices charged by other citizens.
sellers and costs prevailing (b) Electricity boards sell
in different parts of the electricity at cheaper
market. Similarly, buyers rates for agricultural use
should know the prices than for domestic use
being charged by other
sellers. So, perfect
summary
knowledge on the part of
buyers and sellers leads to 1. There is only a
uniform price and uniform single firm in
cost of the product. the market.
2. Price
(v) Absence of Artificial discrimination is
Restrictions: There is no possible.
institutional restriction on 3. No close
the sale or purchase of substitutes of
products in perfect the product are
competition. Prices keep available in the
changing freely according market.
to the demand and supply
forces. No measures are 4. There exist
taken to control the barriers to entry
demand or supply of the of new firms.
product by the 5. Firm has full
manufacturers, consumers control over the
or the government. market supply
Market 9
and hence is
(vi) Perfect Mobility: price maker.
Another feature of perfect
reasons for the
competition is that there is
emergence of
perfect mobility in the
monopoly
market both for goods and
factors of production. 1. Barrier to entry
There is no restriction on 2. Patent Rights
their movement. Goods can
3. Government
be sold at any place.
licensing
Similarly, factors of
production can freely move 4. Cartel
from one place to another
monopolistic
or from one occupation to
competition
another. No firm can secure
(1) A Large Number of
monopoly control over the
Small Sellers and
supply of factors of
Buyers: In monopolistic
production.
competition, the
number of sellers is
(vii) No Other Costs Except sufficiently large but
Production Cost: In a not as large as under
perfectly competitive perfect competition.
market, the production cost The sellers are not
is the only cost. There are mutually dependent
no other costs such as upon one another. Each
advertisement cost, of them acts
transport cost, storage independently and
cost, insurance cost etc. It produces an
is assumed that other costs insignificant portion of
are zero. A producer can the total output. Firms
Market 10
sell his product at any place use the differentiation
and a buyer can buy it from to tell the buyers why
the place he likes. their products are
better in quality and
Features of perfect competition(
competitive in price as
normal Profits) imaginary market
that does not exist in real world compared to their
1. Very Large no of buyers and competitors.
sellers (ii) Product
2. homogenous products Differentiation: This is a
3. Free entry and exit
unique feature of
monopolistic
4. perfect knoweledge
competition. Product of
5. perfect mobility
various firms are similar
6. no other cost except
in nature but are
production cost
differentiated in terms
demand curve
of brand name, shape
horizontal line AR=MR
and size, colour, quality,
perfectly elastic type of service etc. For
example, different
brands of toothpaste
vary on the basis of
colour, taste, fluoride,
packaging etc. The
essence of product
differentiation is to
create an image in the
minds of the buyers
that the product sold by
one seller is different to
the product sold by
another seller. Products
Market 11
are very similar to each
MONOPOLY MARKET ( PROFITS
other but not identical.
ARE ABNORMAL) rarely happens
in real world
1. Single seller and large no of iii Free Entry and Exit of
buyers
Firms: Firms under
2. no close substitutes
monopolistic
3. restrictions on the entry of competition are free to
new firms
enter or leave the
4. firm is the price maker
industry at any time.
5. price discrimination ( unique New firms may start
feature of MONOPOLY)
producing close
6. imperfect knoweledge substitutes of the
DEMAND CURVE product and supply the
AR CURVE IS DOWNWARD same in the market.
SLOPING
Likewise, in the event of
LESS ELASTIC losses, the old firms
may quit the industry. It
is because of this
characteristic that firms
are able to manage only
normal profits.
iv non price
competition; besides
price competition. rival
firms compete with
eachother without
change in price of their
products
Market 12
product variation and
Monopolistic competition (
selling costs are two
NORMAl Profits) this market
exists in real world
main forms of non price
competition.Expenditure
blend of perfect cometition and
monopoly on advertisement r
monopoly; product known as selling costs.
differenciation, close substitutes
v imperfect knowledge:
but no perfect substitutes
buyers nd sellers do not
perdect competition; large no of
have perfect knowlege
firms, no barriers to enter nd exit
about the market
1. Large no of small sellers and
buyers conditions . due to
product differenciation
2. product differenciation
it becomes difficult to
3. Free entry and exit
compare prices.
4. non- price competition
5. imperfect knowledge
similarity between monopolistic
demand curve competition nd perfect
downward sloping\ negatively competition{7}
sloping
1. the no of buyers nd sellers is
highly elastic large
2. there are no restrictions on
entry and exit of firms
3. the principal goal is to
maximise profit
4. each firm earns only normal
procfit in the long run.
Market 13
similarity between monopolistic
competition and monopoly[2]
1, each firm has some mono poly
power
2. demand curve is downward/
negatively sloping
Market 14
