MARKET STRUCTURES

Market structure is best defined as the organisational and other characteristics of a

market. We focus on those characteristics which affect the nature of competition and
pricing – but it is important not to place too much emphasis simply on the market share
of the existing firms in an industry.

Features of Market Structures

• The number of firms (including the scale and extent of foreign competition.
• The market share of the largest firms (measured by the concentration ratio – see
below)
• The nature of costs (including the potential for firms to exploit economies of scale
and also the presence of sunk costs which affects market contestability in the long
term)
• The degree to which the industry is vertically integrated - vertical integration
explains the process by which different stages in production and distribution of a
product are under the ownership and control of a single enterprise. A good example
of vertical integration is the oil industry, where the major oil companies own the rights
to extract from oilfields, they run a fleet of tankers, operate refineries and have
control of sales at their own filling stations.
• The extent of product differentiation (which affects cross-price elasticity of
demand)
• The structure of buyers in the industry (including the possibility of monopsony
power)
• The turnover of customers (sometimes known as “market churn”) – i.e. how many
customers are prepared to switch their supplier over a given time period when
market conditions change. The rate of customer churn is affected by the degree of
consumer or brand loyalty and the influence of persuasive advertising and marketing
Types of Market Structures

1.Pure competition:
The market consist of buyers and sellers trading in a uniform commodity suchas
wheat, copper, or financial securities. No single buyer or seller has much effect onthe going
market price. A seller can not change more than the going price, becausebuyer can obtain
as much they need at the going price. In a purely competitivemarket, marketing research,
product development, pricing, advertising, and salespromotion play little or no role. Thus,
sellers in these markets do not spend much timeon marketing strategy.
2.Pure monopoly:
In economics, an industry with a single firm that produce a product, for whichthere
are no close substitutes and in which significant barriers to entry prevent otherfirms from
entering the industry to compete for profit is called pure monopoly.
Example: When the ‘City Cell’ mobile service company first started their business
inBangladesh, they were the only mobile service provider then. Before the ‘GrameenPhone’
came into the market, they enjoyed pure monopoly.
There are two types of pure monopoly:
1. Regulated monopoly
2. Nonregulated monopoly

Regulated monopoly: The government permits the company to set rates that will
yield a “fair return”. Example: Power Company.

Nonregulated monopoly: Company is free to price at what the market will bear.
Example: ‘City Cell’ ( When it first introduced mobile service in Bangladesh).

• Advantages:
– May be appropriate if natural monopoly
– Encourages R&D
– Encourages innovation
– Development of some products not likely without some guarantee of
monopoly in production
– Economies of scale can be gained – consumer may benefit
 • Disadvantages:
– Exploitation of consumer – higher prices
– Potential for supply to be limited - less choice
– Potential for inefficiency

3.Monopsony:
This is the market situation where there is only one buyer in the market. WhenCity
Cell first introduced mobile service network in Bangladesh, they were the onlymobile phone
and its accessories buyer from Nokia and Motorolla in Bangladesh.

4.Monopolistic competition:
In economics, the market consist of many buyers and sellers who trade over arange
of prices rather than a single market price is called monopolistic competition. Arange of price
occurs because sellers can differentiate their offers to buyers. Sellers tryto develop
difference by using – customer segments, and in addition to price, freelyuses branding,
advertising, and personal selling to set their offers apart

Examples :

restaurants, professions – solicitors, etc., building firms – plasterers, plumbers, etc.

5.Oligopoly:
In economics, the market consist of few sellers who are highly sensitive to
each other’s pricing and marketing strategies. There are few sellers because it isdifficult for
new sellers to enter the market. Each seller is alert to competitor’sstrategies and move.

Examples :

– Supermarkets
– Banking industry
– Chemicals
– Oil
 – Medicinal drugs
– Broadcasting

Measuring Oligopoly:

• Concentration ratio – the proportion of market share accounted for by top X

number of firms:
– E.g. 5 firm concentration ratio of 80% - means top 5 five firms account for
80% of market share
– 3 firm CR of 72% - top 3 firms account for 72% of market share

6.Oligopsony:
In economics, oligopsony is a market where there is a small number of buyersfor a
product or a service. In this market structure, buyers have power over the seller.Because as
there are small number of buyers, if they are united and pressure the sellerto sell the product
or service in a reasonable and affordable price, the seller must haveto consider that.

7.Price discrimination:
In economics, if one product or service has different price for different buyerswhich is
provided by the same provider, then we call that price discrimination marketstrategy. A good
example of this strategy could be the airlines company-“Emirates”. Ithas offered different
prices for different category of passengers for the samedestination. Such as, it has “Student
package” for the students, “Honeymoon package”for the couples which are of lower price
than their regular one

8. Duopoly :

A special case of an oligopoly with two firms. Possibility of price leader emerging –
rival will follow price leaders pricing decisions.
 Quick Reference to Basic Market Structures

Market Structure Seller Entry Barriers Seller Number Buyer Entry Barriers Buyer Number

Perfect Competition No Many No Many

Monopolistic competition No Many No Many

Oligopoly Yes Few No Many

Oligopsony No Many Yes Few

Monopoly Yes One No Many

Monopsony No Many Yes One