Market structure and competition

PLAN

I. Markets

1. Definition

2. Classification of markets

II. Market structure is very complicated. In most industries and markets a lot of larger and smaller companies work. Any firm has its particular niche according to its specific features (unique selling propositions) and its own marketing strategies.

Classification of market structure in terms of types and sizes of the companies.

1. Market leaders

2. Market challengers

3. Market followers

III. Growth and diversification alone don’t guarantee a long-term success, but it comes from competitive advantage.

Porter’s theory of competitive strategy and advantage.

1. Five competitive forces

2. Three generic strategies

IV. Market structure in terms of competition.

1. Power abuse and the importance of competition in any society.

2. Key characteristics of a market structure.

3. Four market structures – general comparison. (Describe a scheme)

V. Perfect competition.

1. Definition

2. Conditions for perfect competition

3. What industries satisfy these conditions (examples).Why do we study this model?

4. The desirability of perfect competition.

VI. Monopolistic competition.

1. Definition.

2. Conditions for monopolistic competition.

3. The desirability of monopolistic competition.

VII. Oligopoly.

1. Definition.

2. Characteristics and conditions of oligopoly.

3. Kinds of oligopoly and examples.

· duopoly

· dominant-firm oligopoly

· bilateral oligopoly

4. Desirability of oligopoly.

VIII. Monopoly

1. Definition.

2. Conditions for existing monopolies.

3. Causes of monopoly; barriers to entry the market.

4. Kinds of monopolies: сcornering the market, bilateral, state, legal, natural, cartel.

5. Desirability of monopolies.

· The arguments against market concentration

· opinions in favour of monopolies (Can anything good be said about monopolies?)

· Are monopolies really a problem for governments?

IX. Monopsony/ duopsony/ oligopsony, etc.

VARIETIES OF MARKET STRUCTURE

I. MARKETS

A persistent problem in all societies is that of putting checks on power. There seem to be no exception to the general rule that unchecked power, whether it is the power of a state, an army, a church, or a private business institution, quickly becomes abused power. This lesson has not been lost on those who defend free market economics most vigorously. When asked what check on the power of individual businesses will be both effective and consistent with freedom, they have answered, ”Competition”. The core of their argument has been that, as long as competition exist in markets, no one producer or group of producers can afford to abuse power by charging too much or by selling shoddy goods, for fear that consumers might turn away from them to buy from other producers. In line with that argument, one of the government’s task is to keep competition alive and functioning.

The notion of competition is very widely used in economics in general and in microeconomics in particular. Competition is also considered the basis for capitalist or free market economies. In standard usage of the term, competition may also imply certain virtues. Markets are the heart and soul of a capitalist economy, and varying degrees of competition lead to different market structures, with differing implications for the outcomes of the market place.

It will be helpful to start the discussion by explaining clearly what is meant by the word " market." A market was originally a building, and still is for some goods, for example cattle or vegetable markets, and for some services, for example Lloyd’s for insurance. Generally speaking, a market is a gathering of people for buying and selling, the place or institution in which buyers and sellers of a good or asset meet.

Nowadays the market is understood as a set of conditions permitting buyers and sellers to work together, in many cases the market is a network of dealers linked physically by telephone and computer networks, and linked institutionally by trading rules and conventions. In its more general and abstract usage, "a market " refers to a set of sellers and buyers whose activities affect the price at which a particular commodity is sold, i.e., it refers to the package of agreements, which allows them to contact to buy and sell goods and services, to the set of all sale and purchase transactions that affect the price of some commodity that result from the successively declining degrees of competition in the market for a particular commodity.

For example, two separate sales of General Motors stock in different parts of the country may be considered as taking place on the same market, while the sale of bread and carrots in neighboring stalls of a market square may, in our sense, occur on totally different markets.

Markets facilitate trade in goods, as in commodity markets; in securities, for example the bond market, the capital market, or the stock exchange; in labour services, as in the labour market; or in foreign currency, in the foreign exchange market.

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