Notesale: Turn your study into money

Document Preview

Extracts from the notes are below, to see the PDF you'll receive please use the links above

---

What is a market structure?
It describes the way in which goods and services are supplied by firms in a particular market
or industry
...

•
•

Market structure is the organisational and other characteristics of a market
We tend to focus on those characteristics of a market which affect the degree of
competition between firms and their pricing decisions

1
...

2
...

3
...

4
...
Likelihood of normal profits in the long term
...
Contestable Markets – An industry with freedom of entry and exit, low sunk costs
...


Structure, conduct, performance paradigm
Structure, Conduct and Performance paradigm (SCP) is used as an analytical framework, to make
relations amongst market structure, market conduct and market performance
...
The way in which markets fail to follow perfect competition
conditions, depends basically in the degree of: supply concentration, demand concentration,
product differentiation and market entrance barriers
...

– Conduct: the way in which buyers and sellers behave, both amongst themselves, and
amongst each other
...

– Performance: It is measured by comparing the results of firms along the industry in
efficiency terms, and different ratios are used to assess different profitability levels
...

The dynamic behaviour of buyers and sellers have an effect on the markets, making it harder to
predict and establish fixed market structures
...
Actually, the
main problem when using this methodology to analyse a market or an industry is the difficulty of
defining the limits or boundaries of a given industry
...
The
concept of a market structure is therefore understood as those characteristics of a market that
influence the behaviour and results of the firms working in that market
...
The interaction and
differences between these aspects allow for the existence of several market structures, from
which we can highlight the following:
-Perfect competition: the efficient market where goods are produced using the most efficient
techniques and the least amount of factors
...

-Monopoly: it represents the opposite of perfect competition
...

-Oligopoly: in this case, products are offered by a series of firms
...
These markets are usually
studied by analysing duopolies, since these are easier to model and the main conclusions can
be extrapolated to oligopolies
...
In other words, each producer will be considered as a
monopoly thanks to differentiation, but the whole market s considered as competitive because
the degree of differentiation is not enough to undermine the possibility of substitution effects
...
The
theory of contestability suggests the number of firms is not so important, but the threat of
competition
...


Elements of the Paradigm

- Structure: those set of variables that are relatively stable over time and affect the behaviour
of sellers and/or buyers
...
Also, the structure of the market will
always be determined by the nature of the product and the technology available
...
Firms choose their own strategic behaviour, investment in research, in
development, advertising levels, collusions, etc
...
The
variables considered at this level are such as price, quantity, product quality, resource
allocation, production efficiency, etc
...
Difficulties arise when trying to explain the paradigm
and this is due to data shortage, and the multiple definitions and extension of markets
...




---