Short notes related to Market Structure




Cartel  is a formal agreement between firms to regulate market supply  and price of the product. [OPEC (Organization of Petroleum exporting countries) is an example for Cartel]. Cartels  and any forms of Price collusion were against public interest and they are forbidden in most countries.

Duopoly is referred to as a situation where only two firms are operating ( generally mean to dominate control the product market). Global scenario - In detergent market Unilever and Procter & Gamble;  In passanger aircraft Boeing and Airbus;  With in a Nation – In telecom market – Dhiraagu and Wataniya  are example.

Barriers to entry to an industry are of two types -
1)    Natural Barriers to entry
Natural Monopoly: - One firm is able to produce the entire market supply at a lower average cost per unit than a number of smaller firms added together.
Capital Size:- Huge initial capital is required to establish the production.(e.g. Electricity from Nuclear power).
Historical reasons:- An established consumer base because of their operation in the market for a very long time  with reputation. (e.g. Lloyds of London has a long term reputation in the insurance market)
Legal Consideration:- There are certain laws restricting the entry of firms into the industry by the government.(e.g. Patent right, copy right, etc.)
2)    Artificial barriers to entry
Restriction on suppliers:- Monopolist threaten suppliers that they will go to another if they supply the raw materials to others.
Predatory pricing:- Monopolist sell their product below its cost of production in short run.
Full line forcing:- Forcing the retailers to keep stock and sell full range of their products
Exclusive dealing:- Preventing retailers from dealing with similar other products.