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market structures
International MSc in Business Administration

Managerial Economics
Market Structures Part 1

Carlos Almeida Andrade
2013/14

Managerial Economics: Market Structures Part 1

Market Structures
Firms may face different environments in terms of market structure:
• number of firms
• relative size of those firms,
• their influence on market conditions (market power)
• different technology and costs gy • information
• demand conditions, etc.
These differences have an impact on the choices made by firms. According to different conditions, we will look at the following market structures:
• Perfect competition
• Monopoly
• Monopolistic competition
• Oligopoly
Managerial Economics / Carlos Almeida Andrade

Carlos Almeida Andrade
2013/14

Managerial Economics: Market Structures Part 1

Perfect Competition
Main conditions for a perfect competitive market:

•Many buyers and sellers in the market, each one “
“small” relative to the market. Each
”
firm is a price taker.
•The product of each firm is homogeneous
The
homogeneous.
•Buyers and sellers have perfect information.
•There are no t
Th
transaction costs. ti t
•There is free entry into and exit from the market.

Example of a market close to perfect competition: agricultural market
Carlos Almeida Andrade
2013/14
Managerial Economics / Carlos Almeida Andrade

Managerial Economics: Market Structures Part 1

Perfect Competition
P

Market

S

Pe

P

Firm

Df=Pe

D
Qf

In
I a competitive market, the price is d t titi k t th i i determined b th i t i d by the intersection of supply and ti f l d demand. An individual firm does not have any control over the formation of this price. It takes the price as given. Every quantity the firm supplies can/will be sold at price Pe. If the firm charged a higher p g g price, it would not sell anything. The demand curve faced by
,
y g y
Carlos Almeida Andrade the firm will be perfectly elastic


References: Consumer Choice Baye, M.R. and J.Prince, “Managerial Economics and Business Strategy”, Global Edition (8th) 2013, McGraw-Hill Carlos Almeida Andrade Chapter 8: Managing in Competitive, Monopolistic, and Monopolistically Competitive Markets 2013/14
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