Transcript Document

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5 Conditions
Number of sellers : Many/Several/One
MARKET STRUCTURE
Nature of Products: Homogenous/Heterogeneous
(Differentiated)
Ease of entry and exit: Easy/Restricted/Difficult
Availability of market information: Perfect/Imperfect
Influence in market price: Price taker / Price searcher
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Perfect Competition
Perfectly Competitive Market
Is an ideal market structure in the eyes of the economists.
In this market, consumers will enjoy the lowest possible price.
But there is NO real-world example .
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Features of
a
Perfectly Competitive Market





Many sellers and buyers
Individual sellers have no influence on the market
Homogeneous goods
Free entry and exit
Perfect information
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Can vegetable stalls be classified as
operating in a perfectly competitive market?
Q1.
Many sellers and buyers?
Yes
Q2.
Individual sellers have no influence
on the market?
No
Q3.
Homogeneous goods?
No
Q4.
Free entry and exit?
No
Q5.
Perfect information?
No
How about Stock Market?
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Some behaviour of a perfectly competitive firm


Under perfectly competitive market, sellers have to
sell at a price according to that established in the
market. They are the price taker.
No individual seller engages in non-price
competition such as advertising and package
design. This is because the goods they sell are the
same to the consumers.
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Monopoly
exists when there is
only one seller that has
no close substitute.
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Features of a Monopoly
 There is no entry in a monopoly and there
is only one producer in the market.
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
The goods or services sold by monopolist
may be homogeneous or heterogeneous.
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
There is no perfect information in the
market. Neither sellers nor consumers
are fully aware of the cost, price, quality
and quantity of the goods traded.
Cost?
Price?
Quality?
Quantity?
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Can “Eastern Cross Harbour Tunnel”
be classified as operating in a monopoly?
Q1.
No entry to the market and
No
there is only one producer?
Q2.
Services sold are homogeneous or heterogeneous?
Yes
Q.3
No perfect information?
Yes
How about water supplies in Hong Kong?
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2 Prominent Behaviour of a Monopolist

A monopolist faces the
entire market demand, he
can influence either the
price or the quantity
demanded but not both. If
he lowers the price, he will
sell more. If he raises the
prices, the quantity
demanded will
drop
________________.
Hence,
he needs to search for or set
a particular price that
profits
maximizes _______________.
Thus a monopolist is a price
searcher or a price setter. 13

Although monopolists do not face direct
competition, they still need to compete with sellers
selling close substitutes. Non-price competition
like _________________
and quality improvement
advertising
is used.
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15
Monopoly
No entry to the market & there is only
ONE producer
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Group Discussion
Draw lines to match the examples of monopolies in Column A with the
ways by which their monopolies are formed in Column B.
1.The Mass Transit Railway (MTR)

 a. By government franchise
2.The First Bus Co. Ltd.

 b. By government ownership
3.The China Light & Power Ltd.

 c. By patent, copyright
4.The Peak Tram

 d. Limited market demand

5.Hello Kitty
6.The Hong Kong International Airport 
7.The Tate’s Cairn Tunnel Co. Ltd.

8.The Water Supplies Department

9.The Organization of Petroleum

 e. Huge capital requirement
and economies of scale
f. Possession of superior
raw materials
g. By integration
Exporting Countries (OPEC)
10. Yun Nan Bai Yao(雲南白藥)

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Ways
1.
By government
franchise
Description
Examples
•The government gives a
•The Kowloon
franchise to a firm to
_____________
•Motor Bus Co.
operate as the only producer
Ltd. http://www.
of a good.
kmb.com.hk
Royalties are paid to the
2.
franchise.
•The government owns the
Common
franchises in
Hong Kong
•The Hong Kong
Government
industry and other sellers are
PostOffice
Ownership
not allowed to enter the industry.
government for having the
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3.
By patent and
•The producer has invented a new product and he
•Plasma,
has the e__________
xclusive right to use new product for a
•Box Fan
certain period.
copyright
opyrights give writers, composers and artist
•C_________
xclusive rights over their ideas for certain period.
e_______
4.
Limited market
demand
market demand and only
Limited _________
one supplier in the local market can
_____
satisfy the market demand.
fully _________
?
Songs book
•The Hong Kong
Oxygen and
Acetylene
Co. Ltd.
5.
The industry requires heavy capital investment.
The firm needs to produce a huge output
Huge capital
conomies of
to enjoy the benefits of e___________
requirement
cale
S______.
As a result,
and Economies of
1.
scale
•The Hong Kong
Electric Holdings
Ltd.
its average cost of production is lower
than the potential competitors.
2.
its output may be very high and so it can
satisfy the entire market demand.
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6.
•The firm possesses
Possession of
superior raw
material
superior raw materials.
__________
7.
•Firms in the same industry
•De Beers (controls
the world’s finest
diamond mines)
By integration may combine together until
finally only one firm
remains.
?
The Organization
of Petroleum
Exporting
Countries (OPEC)
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Oligopoly
exists when there are several dominant sellers in the market
is with only a few sellers
Type of
business
Petroleum
trade
Radio
e.g.
Shell
Caltex
Mobil
Esso
is with several dominant sellers which take
up a relatively large market shares
Type of business
Banking industry
HKSB
Bank of China
Hang Seng Bank
IDD services
Cable & Wireless
CTI Nets
New T&T
New World Tel.
?
?
?
e.g.
Travel agencies
?
?
?
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Features of An Oligopoly
 A few
sellers supply a majority of the total
market supply.
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
Oligopolistic sellers are interdependent. They
will consider their competitors’ responses in
deciding their business policies.

omogeneous or
Goods sold can be h_____________
eterogeneous
h______________.
Entry into oligopolistic market is usually
restricted or difficult.

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 Information
is imperfect under oligopoly.
Neither sellers nor consumers are fully
rice q______
uality
a_____
ost p____,
ware of the c____,
and q_______
uantity sold by different sellers.
Cost?
Price?
Quality?
Quantity?
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Can “Mobile Phone Service” be classified
as operating in an oligopoly?
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Q.1
A few sellers supply a majority of the total market supply?
Yes
Q.2
Sellers are interdependent in deciding their business policies? Yes
Q.3
Market information is imperfect?
Q.4
Yes
Goods sold are homogeneous or heterogeneous?
Yes
Q.5
Entry is restricted or difficult?
Yes
How about the petroleum trade?
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Entry into oligopolistic market is usually
restricted & difficult
Funeral Parlour
Petroleum
Filling Station
TV Station
Fixed
Telecommunication
Services Network
Travel Agency
Fast food shop
Newspaper
Supermarket
Which barrier(s)
discourage(s) the new firms
to enter the above markets?
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BEHAVIOUR UNDER OLIGOPOLY

1. Oligopolists can influence the market. They
are the price searchers.
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2.
Oligopolists are interdependent. If one
seller lowers prices to attract more business,
other sellers will follow. A price war will
break out, and some sellers may go out of business.
Pork $19Per Catty
10% discount for the elderly
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$28 Trip to Shenzhen
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3.
Oligopolistic
sellers often
engage in nonprice competition
such as free gifts
to promote their
product.
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Monopolistic Competition
exists when features of both perfect competition and
monopoly are present.
Features similar to
PERFECT COMPETITION
Features similar to
MONOPOLY
1. There is a large number
of sellers and buyers.
1. Monopolistic competitors
sell heterogeneous product
2. Entry into the market is
relatively easy.
2. Information is
imperfect.
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Can Taxi Service be classified as operating
in a monopolistically competitive market?
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1.
2.
3.
4.
Large number of sellers?
Easy to enter? (Relatively!)
Sell heterogeneous product?
Information is imperfect?
Yes
Yes
Yes
Yes
How about restaurants?
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Monopolistic Competition
I.
BEHAVIOUR
The monopolistically competitive firms are price searchers. As
they sell differentiated
____________ products, they can set a slightly higher
price without losing their customers. They need to find the
particular ___________
that maximises ___________.
price
profits
Boutiques
Hair salon
Monopolistically competitive firms can also charge different
prices even for the same product.
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There are 2 reasons:
First, services offered with the products may be
different, e.g. high-quality service, professional
advice.
Second, market information about the price is
imperfect. It seems impossible for customers to
search every shop for the best price.
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II.
It is common for monopolistic
competitors to engage in
ompetition e.g.
non-p_____
rice c__________,
advertising, offering gifts and
organising lucky draws.
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Hong Kong Golden
III.
Firms under monopolistic competition are usually
located in the same area in a district. There are 2
reasons :
They can be easily known or
The shops often try to
found out by customers.
differentiate their products
It helps to reduce their
or services, competition
advertising costs.
may not be so keen.
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The Major Monopolies in Hong Kong
Name of Company
•The Kowloon Motor Bus Co., Ltd.
•The Hong Kong Tramways Co., Ltd.
•The New World First Bus Services Ltd.
•The City Bus Co., Ltd.
•The New World First Ferry Services Ltd.
•Eastern Harbour Crossing
•Western Harbour Crossing
•Route 3 (Tai Lam Tunnel Section)
•Tate’s Cairn Tunnel
•The Kowloon-Canton Railway Corporation
•Hongkong Post
•Airport Authority
•The Water Supplies Department
•The China Light and Power Co., Ltd.
•The Hong Kong Electric Holdings Ltd.
•The Hong Kong and China Gas Co., Ltd.
•Mass Transit Railway Corporation Ltd.
Sources of Monopoly Power
Government franchise
Government ownership
Government ownership,
ownership of resources
Huge capital requirement,
economies of scale