MARKET MODEL SYSTEM

COURSE: MICROECONOMICS

SUBMITTED BY: LAIBA SARWAR (18K-0010)

SYED MUKKARRAM (18K-0021)

SUBMITTED TO:

DR. NAZIA NAZEER

PROGRAM
BACHELORS OF BUSINESS ADMINISTRATION
FALL 2019

National University of Computer & Emerging Science

 MARKET MODEL SYSTEM
A modern economy has many different types of industries. However, an economic
analysis of the different firms or industries within an economy is simplified by first
segregating them into different models based on the amount of competition within
the industry. There are 4 basic market models: pure competition, monopolistic
competition, oligopoly, and pure monopoly. Because market competition among
the last 3 categories is limited, these market models are often referred to as
imperfect competition.
1. PURE COMPETIDTION

In a purely competitive market, there are large numbers of firms producing a standardized product.
Market prices are determined by consumer demand; no supplier has any influence over the market
price, and thus, the suppliers are often referred to as price takers. The primary reason why there
are many firms is because there is a low barrier of entry into the business.

For Example; Telecommunication & Wheat

I. Telecommunication: The rapid increase in

telecommunication companies in Pakistan show that the
means of communications such as telephone Telecom
organization of Pakistan is fast improving with the foreign
and domestic mobile and fixed-line networks investment. As the (Zong, Ufone, PTCL,
Moblink) they all are providing the same service but the main factor which creates difference
from one another is price.
II. Wheat: As wheat is a commodity and not much differentiation could
be created so competition primarily price.
2. MONOPOLISTIC COMPETITION

Monopolistic competition is much like pure competition in that there are many suppliers and the
barriers to entry are low. However, the suppliers try to achieve some price advantages by
differentiating their products from other similar products. Most consumer goods, such as health
and beauty aids, fall into this category. Suppliers try to differentiate their product as being better,
so that they can justify higher prices or to increase market share. Monopolistic competition is only
possible, however, when the differentiation is significant or if the suppliers are able to convince
 consumers that they are significant by using advertising or other methods that would convince
consumers of a product's superiority.

For example: Soap, Juices Range

I. Dove: Soaps are being sold on the basis of differentiation and value of
created for customers. Dove & Lux, both are products of unilever with
different price range and value is created on the basis of quality and
branding.
II. Nestle: Juices range of nestle can be taken as the core example of
monopolistic competition.
3. OLIGOPOLY:

An oligopoly is a market dominated by a few suppliers. Although supply and demand influences
all markets, prices and output by an oligopoly are also based on strategic decisions: the expected
response of other members of the oligopoly to changes in price and output by any 1 member. A
high barrier to entry limits the number of suppliers that can compete in the market, so the
oligopolistic firms have considerable influence over the market price of their product. However,
they must always consider the actions of the other firms in the market when changing prices,
because they are certain to respond in a way to neutralize any changes, so that they can maintain
their market share.

For Example:

I. Honda: Automobile is a typical example of oligopoly because of high

barriers of entry due to high fixed cost and dependency on a few vendors
in the market.
II. Boeing: Boeing can also be taken as an example of
oligopoly as they are only two approved companies to
manufacture airplanes and barriers of entry are way higher than the automobile.
4. PURE MONOPOLY:

A pure monopoly has pricing power within the market. There is only one supplier who has
significant market power and determines the price of its product. A pure monopoly faces little
competition because of high barriers to entry, such as high initial costs, or because the company
has acquired significant market influence through network effects.

For Example: K- Electric, Intel (Micro Processor)

I. Karachi Electric: it is a perfect example of pure monopoly in

Karachi due to its wide consumer network and almost
indispensable electricity grid.
II. Intel processors: it is also an example of monopoly at the global
level as all renowned brands like HP, Dell, Lenovo, etc. uses Intel
as their processor.