Market Structures, Competition, and Employment Dynamics

Market Structures and Competition

Market

The market encompasses all activities of buying and selling a product between companies and consumers. It forms the basis of market and mixed economies, facilitating exchange through supply and demand.

Perfect Competition

In perfect competition, goods and services are exchanged for cash. Numerous suppliers and applicants exist, with no single supplier able to modify the product price. All companies compete under the same conditions.

Imperfect Competition

Imperfect competition occurs when one or more companies can influence the price. The fewer businesses, the greater their price influence.

Monopoly

A monopoly exists when one company produces a good or service, having full control over price and quantity.

Oligopoly

An oligopoly involves few companies influencing the price, such as the oil market.

Monopolistic Competition

Many companies offer similar but differentiated products, creating brand loyalty and giving companies some price influence (e.g., the telephone market).

Market Ranking Criteria

  1. Degree of Concentration: The number of companies in a market.
  2. Influence on Price
  3. Degree of Homogeneity: How interchangeable products are.
  4. Intensity of Competition: How fiercely companies compete.
  5. Transparency Degree: The information buyers and sellers have about prices.
  6. Freedom of Entry and Exit: How easily companies can enter or leave the market.

Market Barriers

These obstacles prevent new companies from entering the market. Examples include cost advantages, product differentiation, and high capital requirements. Exit barriers involve high costs from unrecovered investments.

Perfect Competition Characteristics

  • Low production costs
  • Homogeneous products
  • Price-accepting firms
  • Production quantity based on consumer willingness to pay
  • Buyer information availability
  • Free entry and exit

Monopoly Causes

Barriers to Entry

  • Exclusive access to a resource
  • Legal rights (e.g., patents)
  • Administrative concessions
  • Cost advantages

Oligopoly

Characteristics:

  1. Few companies share the market.
  2. Homogeneous and substitutable products.
  3. Strong capital investment.

Operation:

  • Without Collusion: Companies compete through strategies like advance trade policies and price wars.
  • With Collusion: Companies form a cartel.

Monopolistic Competition

  1. Many Companies: Each influences price through performance.
  2. Product Differentiation: Products meet the same needs but are not perfect substitutes.

Operation: Advertising allows companies to charge higher prices, maintain customer loyalty, and attract new customers.

Revenue and Employment

Revenue

Revenue represents the value of a productive resource in a given period.

Natural Resource Market

In the short term, available natural resources are considered constant.

Labor Market

Labor depends on:

  • Wage levels
  • Price of goods
  • Worker productivity
  • Employment policies

Working Age Population

Includes employed (self-employed and employed by others), unemployed, and inactive individuals. Data sources include the INE (National Institute of Statistics).

Employment Statistics

The EPA (Labor Force Survey) collects data quarterly.

Types of Unemployment

  • Cyclical: Due to economic downturns.
  • Seasonal: Caused by fluctuating demand throughout the year.
  • Frictional: From people moving between regions or jobs.
  • Structural: Mismatch between labor supply and demand.

Unions

Unions protect workers’ rights through collective bargaining, strikes, and lockouts. They advocate for job limitations and minimum wages.