ECONOMICS 101

MARKET COMPETITION

What is a MARKET?

A market is a group of buyers and sellers, where buyers determine the demand and sellers determine the supply, together with the means whereby they exchange their goods or services is called the market

When is there Competition in the market?

Economists assume that there are a number of different buyers and sellers in the marketplace. This means that we have competition in the market, which allows price to change in response to changes in supply and demand.

In economics, competition is the rivalry among sellers trying to achieve such goals as increasing profits, market share, and sales volume by varying the elements of the marketing mix: price, product, distribution, and promotion.

Basic Market Structures in regards to Market Competition

Monopoly

A monopoly is a market structure in which there is only one producer/seller for a product. In other words, the single business is the industry. Entry into such a market is restricted due to high costs or other impediments, which may be economic, social or political.

Perfect Competition

Perfect competition is characterized by many buyers and sellers, many products that are similar in nature and, as a result, many substitutes. Perfect competition means there are few, if any, barriers to entry for new companies, and prices are determined by supply and demand. Thus, producers in a perfectly competitive market are subject to the prices determined by the market and do not have any leverage.

Oligopy

In an oligopoly, there are only a few firms that make up an industry. This select group of firms has control over the price and, like a monopoly, an oligopoly has high barriers to entry. The products that the oligopolistic firms produce are often nearly identical and, therefore, the companies, which are competing for market share, are interdependent as a result of market forces.

Monopolistic competition

In a Monopolistic competition, -Many and small sellers
-Differentiated product
-Free entry and exit
-Transparent and free information

Final Question: When is it a PERFECT COMPETITION?

-Many and small sellers, so that no one can affect the market
-Homogeneous product
-Free entry to and exit from the industry
-Transparent and free information

For example, in a perfectly competitive market, should a single firm decide to increase its selling price of a good, the consumers can just turn to the nearest competitor for a better price, causing any firm that increases its prices to lose market share and profits.

created by: Lean Mari