Market structure. Competition.

Market is a place where people gather to buy and sell goods. Today, however, a market is simply a set of conditions permitting buyers and sellers to work together, or a set of sellers and buyers whose activities affect the price at which a particular commodity is sold.

Types of markets:

I. 1) Spot market: the buying and selling of goods, currency or securities that arc available for immediate delivery. 2) Futures market: the buying and selling of goods, currency or securities for delivery at a future date for a price fixed in advance.

II. 1) Terminal – the market dealing mainly in commodities that will be avaliable in future (FUTURES) rether than goods that are avaliable immediately (ACTUALS); 2) Stock market is the market where stocks and shares are bought and sold under fixed rules, but at prices controlled by supply and demand. 3)Foreign exchange markets a re the markets where foreign currencies are traded.

Market leader – the firm with the largest market share. This is often the first company to have entered the field, or at least the first to have succeeded in it. The market leader is frequently able to lead other firms in the introduction of new products, in price changes, in the level or intensity of promotions, and so on. The major purpose of a market leader is certainly to remain the leader. The best way to achieve this is: to increase the market share or to protect the current market share. Market challenger – the company with the second-largest market share. These companies can either attempt to attack the leader, or to increase their market share by attacking market followers. If they choose to attack the leader, they can use most of the strategies available to market leaders: product innovation, price reduction, improved services, distribution channel innovations and so on.

The majority of companies in any industry are market followers that are in a difficult position. They are usually the favorite target of market challengers. Many market followers concentrate on market segmentation: finding a profitable niche in the market that is not satisfied by other goods or services, and that offers growth potential. They can concentrate on already established niche. In this case the possibility for followers can be to imitate the leader’s product: to clone it, to improve, adapt or differentiate it. In order to be competitive, followers have to keep their manufacturing costs low and the quality of their products and services high.

Expanding: 1) to try to find ways to increase the size of entire market. 2) by stimulating more usage (radio or cassete player)

A market leader which does not establish its own niche is in a vulnerable position: if its product does not have a ‘unique selling proposition’ (уникальное торговое предложение) there is no reason for anyone to buy it. Further more, they are vulnerable in a recession when, lagerly for phychological reasons, distributors, retailers and customers all prefer to buy from big, well-know suppliers.

In books, Competitive Strategy, and Competitive Advantage, Michael Porter argued that growth and diversification alone do not guarantee a company long-term success. 5 competitive forces at work in an industry: 1)rivalry among existing firms, 2)the threat of new entrants, 3)the threat of substitutes,4)5) and the bargaining power of both buyers and suppliers.

	Number of firms	Control over product price	Type of the product	Entering barriers	Existence of non-price competition
Perfect competition	Many	No	Indentical	Low	No
Monopoly comprtition	Large namber	Some	Some product differenciation	Low	Considerable use
Olygoply	Few (>2)	Some	Diff. and indentical	Very high	Heavy use
Monopoly		Considerable control	No differentiation	Is blocked	Utilized

 

Some people even argue that monopolies are always temporary and consequently not a problem. For example, although entrepreneurs introduce new products and techniques and open up new markets, their profits are soon competed away by rivals. Even the profits made by a natural monopoly will be temporary, because they are an incentive for entrepreneurs to discover and implement new lost-cost technologies. An example here would be telecommunications. According to this positions, the government only needs to ensure that there is no monopoly over important inputs, because there will never be a monopoly of scientific of artistic genius or business ideas.

Monopsony: 1 buyer and many sellers Duopsony: 2 buyers and many sellers Oligopsony: few buyers