Market Structure - mikroekonomia.net

Instytut Ekonomii
Market structures and
efficiency
Prof. Tomasz Bernat
Microeconomics Department
Institute of Economics
[email protected]
Instytut Ekonomii
Neo-clasical economics
• Basic teorem:
• Competition is good solution but monopolisation
is bad solution for the economy:
– The perfect competition is a market structure where
economics resources are allocated in optimal way
– Monopoly lead to wrong resources allocation
• Questions: Is it right? For whom? For what? In
what conditions?
Slajd nr 2
Instytut Ekonomii
Market Structure
• Market Structure – those characteristics of
the market that significantly affect the
behavior and interaction of buyers and
sellers
Slajd nr 3
Instytut Ekonomii
Market structure – criteria of describing
•
•
•
•
•
Number and size of sellers and buyers
Type of the product
Conditions of entry and exit
Undertaken form of competition
Transparency of information
Slajd nr 4
Instytut Ekonomii
Number and size of sellers and buyers
• The example:
–
–
–
–
10 companies in a single market
Case 1: all companies have the same market share
Case 2: the first company has 91%, all others 1% each
Question: where the competition is stronger?
• Kind of competition:
– Quantitative competition
– Qualitative competition
Slajd nr 5
Instytut Ekonomii
Type of the product
• The kind of product’s groups
– Standard
– Differented
Slajd nr 6
Instytut Ekonomii
Undertaken form of competition
• Price competition
• Non-price competition
Slajd nr 7
Instytut Ekonomii
Conditions of entry and exit
Structural barriers
• High capital cost
• Economies of scale
• Product differentiation and brand loyalty
• High switching cost
• Ownership/control of key factors or outlets
Strategic barriers
• Limit pricing
• Excess capacity
• Vertical integration
• Sleeping patents
• Predatory pricing
• Tying sales
Institutional barriers
• Patents
• Regulations
Slajd nr 8
Instytut Ekonomii
Transparency of information
• Full information
• Non-transparent information
• Problem of information asymmetry
Slajd nr 9
Instytut Ekonomii
Market Structures
• The four market structures
– perfect competition
– monopoly
– monopolistic competition
– oligopoly
Slajd nr 10
Instytut Ekonomii
Slajd nr 11
Instytut Ekonomii
Perfect Competition - structure
• 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
Slajd nr 12
Instytut Ekonomii
Pure Monopoly- market structure
• Only one producer in the industry
• The product does not have close
substitutes
• Blocked entry
Slajd nr 13
Instytut Ekonomii
Monopolistic competition - structure
•
•
•
•
Many and small sellers
Differentiated product
Free entry and exit
Transparent and free information
Slajd nr 14
Instytut Ekonomii
Oligopoly – market structure
• A) Tight oligopoly – a few big firms in the
industry with comparable market shares
B) Dominant firm oligopoly – one of the
big firms in the industry is recognized as
the price leader
• Homogeneous / Heterogeneous oligopoly
• Significant barriers to entry to and exit
from the industry
• Significant barriers to
information
Slajd nr 15
Instytut Ekonomii
SCP Paradigm
Basic Conditions
Market Structure
Conduct
Performance
Slajd nr 16
Instytut Ekonomii
BASIC CONDITIONS
•
•
•
•
•
•
SUPPLY
raw material
technology
product durability
value/weight
business attitudes
unionization
•
•
•
•
•
•
DEMAND
price elasticity
rate of growth
substitutes
marketing type
purchase method
cyclical and
seasonal character
Slajd nr 17
Instytut Ekonomii
Market structure
Slajd nr 18
Instytut Ekonomii
Market Conduct
• Market Conduct – a firm’s policies
toward its market and toward the
moves made by its rivals in that
market
Slajd nr 19
Instytut Ekonomii
CONDUCT
•
•
•
•
•
pricing behavior
product strategy
research and innovation
advertising
legal tactics
Slajd nr 20
Instytut Ekonomii
Market Performance
• Market Performance – how well does
an industry do what society might
reasonably expect it to do
Slajd nr 21
Instytut Ekonomii
PERFORMANCE
•
•
•
•
•
•
profitability
allocative efficiency
static production efficiency
dynamic efficiency - progress
full employment
equity
Slajd nr 22
Instytut Ekonomii
Perfect Competition - Performance
•
•
•
•
•
•
P = MR
MC = MR
P = MC
P = AC
AC = MC
AC minimum
Slajd nr 23
Instytut Ekonomii
Perfect Competition - Performance
Static Efficiency
• Efficiency in allocation
• Efficiency in motivation
• Efficiency in distribution
MC = P
AC = MC
AC = P
The Perfect Competition achieves static efficiency
Dynamic Efficiency
There is NO potential and motivation for innovations and technological progress
The Perfect Competition does not achieve dynamic
efficiency
Slajd nr 24
Instytut Ekonomii
Pure Monopoly - performance
Static efficiency
•
•
Efficiency in allocation
Efficiency in motivation
MC < P
excess capacity
•
Efficiency in distribution
AC < P
The pure monopoly does not achieve static efficiency
Dynamic efficiency
There is a potential and motivation for innovations and technological progress
The pure monopoly is motivated to achieve dynamic efficiency at the
presence of potential competition
Slajd nr 25
Instytut Ekonomii
The most innovative companies in the World 2015
The Forbes ranking
Questions: are the companies SME or big?
What marekt structure they represent?
Slajd nr 26
Instytut Ekonomii
No 1
Tesla Motors
Slajd nr 27
Instytut Ekonomii
No 2
Slajd nr 28
Instytut Ekonomii
No 3
Alexion Pharmaceuticals
Slajd nr 29
Instytut Ekonomii
No 4
Regeneron Pharmaceuticals
Slajd nr 30
Instytut Ekonomii
No 5
ARM Holding
Slajd nr 31
Instytut Ekonomii
No 6
Unilever Indonesia
Slajd nr 32
Instytut Ekonomii
No 7
Slajd nr 33
Instytut Ekonomii
No 8
Slajd nr 34
Instytut Ekonomii
No 9
Under Armour
Slajd nr 35
Instytut Ekonomii
No 10
Biomarin Pharmaceutical
Slajd nr 36
Instytut Ekonomii
Summary of 10 the most innovative
Slajd nr 37
Instytut Ekonomii
Competition vs monopolisation
• Questions:
–
–
–
–
Is it right?
For whom?
For what?
In what conditions?
Slajd nr 38