Product Markets | Business Studies Form 3

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Product Markets - Business Studies Form 3

Background

Firms would always wish to sell all goods and services that they produce.On the other hand consumers desire to have all goods they need supplied to them.Some markets may have few suppliers of similar or differentiated goods. In the markets the number of suppliers may vary from from one to many.

PRODUCT MARKETS

There are different types of product markets, which have different features in terms of number of buyers and sellers and whether the goods are similar or differentiated. They include perfect competition, monopoly, monopolistic competition and oligopoly. Different product markets are shown in the video next page.

Click on the play button to view examples of monopolistic competition.


Click on the play button to view an example of monopolistic competition.



Types of product markets

Perfect competition

It is a market structure where there are many firms which produce only a small fraction of the total output required and none of the firms can influence the price in the market.

Features of perfect competition


  • Large number of buyers and sellers.
  • Goods sold are homogeneous [firms produce identical products].
  • Buyers and sellers have a perfect knowledge of the market.
  • No government intervention.
  • Free entry and exit of firms in the market.

Monopoly

This is a market in which a single firm is the exclusive producer and seller of a particular product, for example, Kenya Power and Lighting Company and Kenya Ports Authority.

Features of monopoly


  • There is only one producer or seller of the product.
  • The product sold has no close substitute.
  • There are large numbers of buyers.
  • There are barriers to entry into the market.
  • The prices are fixed by the producer.

Examples of monopoly are Kenya Power and Lighting Company and Kenya Ports Authority.


Monopolistic competition

This is a market structure with many sellers dealing with similar products but differentiated either by branding, wrapping, packaging or colouring. Examples include: colgate, close-up, aquafresh, pepsodent, white dent among others.

Features of monopolistic competition

  • There are many sellers in the market who operate independently.
  • The products sold are close substitutes of each other and are differentiated.
  • There is free entry and exit of firms in the market.
  • There are many buyers in the market

  • There is presence of non-price competition for example advertising.

Oligopoly

This is a market structure with a few firms in the industry which produce goods and services that are very close substitute but differentiated. Examples are mobile phone providers such as Orange,Airtel,Safaricom and YU among others. Other examples are petroleum companies, newspapers and textbook publishers.

Features of oligopoly


  • There are few firms producing the product.
  • Each firm takes into account the actions of others in the market since they affect them.
  • Products are similar but differentiated.
  • Some firms collude to maximize profits leading to cartels.

Examples of Oligopolistic firms in Kenya




Example of duopoly in Kenya

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