Market: A Market, from a consumer's point of view, is made up of those firms from which a consumer can buy a well defined product.
- 1) Number and size of distribution of sellers
- 2) Extent to which interdependency is felt among the sellers
- So much in some industries that they have industrial spies – ford and Chrysler are very interested in what one another are doing and what they will release on the market at the same time
- “Farmer Joe” cares less about what “farmer Bill” does, in terms of bringing to market, and specializing in.
- 3) Nature of difference and Similarities of the products
- Ex.: particular standard size of computer chips
- toothpaste can vary dramatically
- 4) Knowledge held by buyers and sellers about the prices in the market.
- Prostitution – people are unlikely to know all the relevant information at anyone one time about the market
- Gold markets – all relevant information is likely to be transmitted in prices
- 5) Entry and exit conditions: are there barriers?
Pure (Atomistic) competition:Edit
- A) Large numbers of buyers and sellers so large that the behavior of one seller has no appreciable effect on the market and goes unnoticed
- B) Prices of different sellers are homogenous – this is recognized when buyers register no preference with regard to what seller they buy from
- C) Buyers and sellers are perfectly informed about prices – also seen as zero information costs
- D) Industry is characterized by the perfect ease of entry and exit.
These assumptions make it probable that firms in the market are “price takers” That the firm has no pricing policy but simply takes the price the market will bear. Make it likely that firms are profit maximizers. (This allows us to model firm utility based only on profit).