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TEXT A: MARKETS AND MARKET STRUCTURE

One of the crucial elements to understanding how a market will function (though it will not explain everything) is its market structure. These are the key elements that determine the behaviour of firms in the market and the outcome that will be produced by the market. One way of considering the market structure is to talk about the conditions that exist in the market. These conditions fall into (approximately) four categories: - actors in the market (both numbers of actors and the sizes of these actors); - the entry conditions (which includes the exit conditions); - information characteristics of the market; - product characteristics. Taken together, these factors provide a useful picture of a market, revealing how it works and the results that one would observe in this market. Four market structures are: 1. Perfect Competition. 2. Monopolistic Competition. 3. Monopoly. 4. Oligopoly. Perfect Competition. The outcome of this market structure is a situation in which firms (as well as consumers) act as price takers. This condition results from the circumstances that exist in these markets, with respect to the categories described above. As they apply to the competitive market, these conditions are: - many buyers and sellers; - no restrictions on entry or exit; - no advantages to existing firms (no special knowledge or equipment); - full information on the part of buyers and sellers; - products are homogeneous. Taken all together, these factors imply that no single firm has any meaningful influence on the market. This is the essence of price-taking behaviour: no firm can have any significant role in setting prices, so all firms must take the market price as given. What this, in turn, implies is that a firm can sell all of the output it wants at the going price. Whenever economists discuss the workings of the market, typically there is a focus on the interaction of supply and demand. This basic model starts with and generally is based upon the type of situation present in a perfectly competitive market. In a perfectly competitive market the interaction of buyers and sellers determines the market price and quantity. At the same time, firms in these markets take the information at hand about the market price to determine how much they will produce. Monopolistic Competition. Look around your locality. There are some good numbers of restaurants serving their customers. Though they might be producing same kind of recipes, the branding would be different. And that’s the catch of monopolistic competition. Many buyers, many sellers, almost same product but different branding and fierce competition. When the conditions necessary to have a perfectly competitive market do not hold, then other market structures become relevant. The first that we want to consider is the exact opposite of the circumstances found in the perfectly competitive market—the monopoly market. Monopoly. The central feature here is that for a monopoly firm, their behaviour is one of a price maker. This means that the firm has (in this case, full) market power, or control over the market price. This arises out of the peculiar circumstances in which the monopolist operates. The following are the basic market structure conditions: - many buyers and a SINGLE seller; - ability to restrict entry and exit; - specialized knowledge/equipment; - lack of complete or full information possessed by buyers and sellers; - heterogeneous products. These structural factors imply that the firm faces the market demand curve, which we presume to be downward sloping. Unlike what we see in the perfectly competitive market, there is no distinction to be made between the activities at the market level and at the firm level; they are one in the same. The primary thing to note here is that the monopolist wishes to maximize profit. The monopolist chooses to restrict output, resulting in a higher price, and as a consequence, a higher level of profit. This, naturally, harms the consumer. Since many consumers are unwilling or unable to trade in the market, fewer units are bought and sold. We characterize this as being inefficient. Other details go beyond the scope of this short discussion, including different sorts of pricing behaviour, the existence of economies of scale and the implications of economies of scale on the market, and interactions between single buyers and sellers. These notions of inefficiency and harm to consumers are ostensibly the reasons for the existence and enforcement of federal antitrust laws. Some markets fit neither the monopoly nor the perfectly competitive market structures that we have considered. They fall into the gray area in between—where there are a number of firms, each of which has some influence over the market. This influence is not, as you would expect, complete. For the economist, this type of market is particularly troublesome. Both competitive and monopoly markets yield clear results in terms of the behavior of buyers and sellers, the price that will result and the nature of the interaction between firms. These results are not well determined in the market described here. What we are talking about is generally referred to as Oligopoly. Oligopoly Markets. For oligopoly markets, the familiar list of structural characteristics is less useful. Clearly, we could talk about the numbers of buyers and sellers, the product characteristics, and so forth. Yet this is much less informative than in the two other structures that we have described. There are typically a large number of buyers. The number of sellers is much less clear. At a minimum, there must be at least two firms, but this number can be higher (though how much higher is not really determined). The key idea here is that the number of firms is small, small enough that each firm’s actions have an important effect on the success and behaviour of the other firms in the market. Because of this interrelationship, firms are said to be mutually interdependent, which is simply a more involved way of noting that any action by a firm has to be made by taking into account its effect on the others and the other’s effect on that firm. The key idea is that firms interact strategically with each other. There are many different ideas that have been developed to attempt to understand and predict the behaviour of firms in oligopoly markets, but none of them is a general model. When we do not know precisely how firms will act and react, we cannot model this precisely. Basically, there are two ways that we can consider firms to interact. One is to act together, or cooperatively, to make decisions in the marketplace. In general, economists refer to this as collusion, or alternatively, as the formation of a cartel. The essential idea here is that the separate firms act collectively as if they were a single monopolist and share the profits earned by the monopolist. There are significant difficulties in maintaining such a relationship and most attempts to collude end, at least eventually, in failure. It should also be noted that such behaviour is illegal, violating antitrust laws. The second way is to presume independent, or non-cooperative, interaction. This approach is where much work has been done, but, again, without the production of a universal approach. This analysis is quite similar to other types of non-cooperative interactions.

VOCABULARY FOCUS

Ex.1. Find the English equivalents in the text.

Умови виходу з ринку; встановити ціну; вихід з ринку; досконала конкуренція; інформаційні характеристики; взаємодія продавців і покупців; жорстка конкуренція; максимізувати прибуток; однорідні продукти; ринкова ціна; попит і пропозиція; характеристики продукту; структура ринку; монополістична конкуренція; монополія; олігополія; ринкова влада; економія за рахунок масштабу; ціноотримувач.

Terms of exit from the market; set the price; exit from the market; perfect competition; information characteristics; interaction of sellers and buyers; fierce competition; maximize profits; homogeneous products; market price; supply and demand; product characteristics; market structure; monopolistic competition; monopoly; oligopoly; market power; economies of scale; price list.

Ex.2. Give the Ukrainian equivalents of the following words and phrases.

One of the crucial elements to understanding; the behaviour of firms in the market; the outcome that will be produced by the market; to apply to the competitive market; meaningful influence on the market; the essence of price-taking behavior; to take the market price as given; at the going price; the interaction of supply and demand; to take the information at hand; the branding; fierce competition; ability to restrict entry and exit; heterogeneous products; to restrict output; influence over the market; to have an important effect on the success and behaviour; to be mutually interdependent; to interact strategically; to make decisions in the marketplace; antitrust laws.

Один з найважливіших елементів розуміння; поведінка фірм на ринку; результат, який дасть ринок; подати заявку на конкурентний ринок; значний вплив на ринок; суть поведінки ціноутворення; взяти ринкову ціну, як зазначено; за постійною ціною; взаємодія попиту та пропозиції; взяти інформацію під рукою; брендинг; жорстка конкуренція; можливість обмеження в'їзду та виїзду; неоднорідні продукти; обмежити випуск; вплив на ринок; мати важливий вплив на успіх і поведінку; бути взаємозалежними; стратегічно взаємодіяти; приймати рішення на ринку; антимонопольне законодавство.

Ex.3. Give three forms of the following verbs. Find the sentences with these verbs in the text.

To understand, to function, to produce, to talk, to fall, to apply, to have, to be, to give, to imply, to sell, to want, to discuss, to start, to hold, to become, to consider, to mean, to arise, to see, to make, to choose, to restrict, to buy, to influence, to yield.

understand	understood	understood
fall	fell	fallen
have	had	had
be	was, were	been
give	gave	given
sell	sold	sold
hold	held	held
become	became	become
mean	meant	meant
arise	arose	arisen
see	saw	seen
make	made	made
choose	chose	chosen
buy	bought	bought

Розуміти, функціонувати, виробляти, говорити, падати, застосовувати, мати, бути, давати, натякати, продавати, хотіти, обговорювати, починати, тримати, ставати, розглядати , означати, виникати, бачити, робити, вибирати, обмежувати, купувати, впливати, поступатися.

4,5,6,10 после текста

3,5,6 пессив