Lecture 4- Market types

Market share- This is [blank_start]sales[blank_end] as percentage of [blank_start]total market sales[blank_end]

To evaluate how [blank_start]attractive[blank_end] market is, manager might be interested in various factors. One factor is [blank_start]size of market[blank_end] which can be measured by [blank_start]volume[blank_end] of sales or [blank_start]value[blank_end] of sales. Another factor is [blank_start]market growth[blank_end] (measured by [blank_start]percentage change[blank_end] in sales over year). Third factor is [blank_start]market share[blank_end]

Concentration ratio- Measures [blank_start]market share[blank_end] of [blank_start]largest[blank_end] “n” number of businesses

One reason why it is difficult to enter some markets is because there are [blank_start]barriers to entry[blank_end] ([blank_start]factors[blank_end] that make it difficult for [blank_start]new[blank_end] firms to [blank_start]enter[blank_end] market). One category is [blank_start]structural barriers[blank_end] (related to kind of [blank_start]firm[blank_end] that is going to [blank_start]operate[blank_end]). Another category is [blank_start]strategic barriers[blank_end] (related to [blank_start]brand[blank_end] & [blank_start]trademark[blank_end]). Third category is [blank_start]statutory barriers[blank_end] ([blank_start]restrictions[blank_end] on legal sources such as restrictions on number of [blank_start]licences[blank_end] granted or [blank_start]patents[blank_end] given)

Another reason why it is difficult to enter some markets is because there is [blank_start]minimum efficient scale[blank_end]. This is first level of [blank_start]output[blank_end] at which [blank_start]long-run[blank_end] average costs stop [blank_start]falling[blank_end] with expansion. To take advantage of economies of scale, firm should be [blank_start]large[blank_end]

Third reason why it is difficult to enter some markets is because there should be [blank_start]differentiation[blank_end]. This involves making products [blank_start]different[blank_end] from those of [blank_start]competitors[blank_end]

In perfect competition there are [blank_start]many[blank_end] businesses, [blank_start]similar[blank_end] products, [blank_start]low[blank_end] switching costs, [blank_start]perfect[blank_end] information & [blank_start]no[blank_end] barriers to entry

One advantage of perfect competition is that it leads to [blank_start]lower[blank_end] prices for [blank_start]consumer[blank_end] & so have more [blank_start]consumer surplus[blank_end]. Another advantage is that it [blank_start]rewards[blank_end] more efficient producers. Third advantage is that market allocates resources [blank_start]efficiently[blank_end]

In monopoly there is [blank_start]one large[blank_end] business, [blank_start]unique[blank_end] product or products & [blank_start]barriers to entry[blank_end]

One advantage of monopoly is that it is possible to achieve [blank_start]economies of scale[blank_end]. Another advantage is that they can do a lot of [blank_start]investment[blank_end] to increase [blank_start]barriers to entry[blank_end]

One disadvantage of monopoly is that there are likely to be [blank_start]higher[blank_end] prices (assuming there is no [blank_start]government intervention[blank_end]) because they will take advantage of [blank_start]monopoly power[blank_end] & make [blank_start]abnormal[blank_end] profits. Another disadvantage is that there may be [blank_start]poor[blank_end] quality as there may be lack of [blank_start]focus[blank_end] on this. Third disadvantage is that there may be lack of [blank_start]innovation[blank_end] as they are only supplier

In oligopoly there are [blank_start]few[blank_end] businesses, [blank_start]differentiated[blank_end] products, [blank_start]higher[blank_end] switching costs, potentially [blank_start]imperfect[blank_end] information & [blank_start]barriers to entry[blank_end]

One advantage of oligopoly is that it is possible to achieve [blank_start]economies of scale[blank_end]. Another advantage is that they can do a lot of [blank_start]investment[blank_end] to increase [blank_start]barriers to entry[blank_end]

One disadvantage of oligopoly is that there are likely to be [blank_start]higher prices[blank_end] (assuming there is no [blank_start]government intervention[blank_end]) because they want to make [blank_start]abnormal[blank_end] profits. Another disadvantage is that there may be [blank_start]poor quality[blank_end] as there may be lack of focus on this. Third disadvantage is there may be [blank_start]wasteful competition[blank_end] (firms competing on something which doesn't [blank_start]add value[blank_end] to quality of products or consumers)

In monopolistic competition there are [blank_start]many[blank_end] businesses, [blank_start]differentiated[blank_end] products, [blank_start]low[blank_end] switching costs, likely to be close to [blank_start]perfect[blank_end] information & [blank_start]low[blank_end] or [blank_start]no[blank_end] barriers to entry

Cartel- Occurs when businesses [blank_start]collude[blank_end] to set [blank_start]price[blank_end] &/[blank_start]output[blank_end]