INDUSTRY DEVELOPMENT

Trade policies are one of the tools used to pursue industry competitiveness. In January
2012, the DTI formally launched the program for the conduct of industry development
roadmaps, culminating in a Comprehensive National Industry Strategy. The on-going
process of developing industry roadmaps is private sector-driven (i.e. private sector
takes the lead in both crafting and driving the action), with the DTI serving as a catalyst,
facilitator and an enabler. However, government will take the lead in consolidating and
integrating the roadmaps into a national strategyidentifying gaps and attracting
investments into key projects. A total of 27 industry competitiveness roadmaps are
foreseen, along with a Manufacturing industry plan.

Overall, the objectives of the Industry Roadmap Project are to:

Craft and implement industry development roadmaps
Craft and implement a comprehensive national industrial strategy
Institutionalize public-private sector partnership in crafting and executing the roadmaps
Build up capacity of government and industry associations to execute the roadmaps
Develop a more strategic and focused investment promotions plan
The industry strategy will intersect with trade policy and provide a platform for sectoral
negotiating positions in pursuit of medium- and long-term competitiveness-based
generation of jobs and incomes.

Comprehensive National Industrial Strategy (CNIS)

The Comprehensive National Industrial Strategy (CNIS) will link and integrate
manufacturing, agriculture and services; address supply chain gaps; and deepen
industry participation in global value chains. Strategic actions include human resource
development; SME development; innovation and R&D activities; green industries;
aggressive promotion and marketing programs; infrastructure investments to address
the high cost of power, logistics and shipping; and streamlining and automation of
government procedures and regulations affecting business operations

Ease of Doing Business (EOBD)

To complement the policy initiatives of the IDG, efforts to improve the business
environment were pursued by simplifying regulatory procedures.
In particular, the DTI reduced the business registration processes through the
Nationwide Streamlining of Business Permits and Licensing Systems (BPLS). In 2015,
the process took 16 steps and 29 days. In 2016, the process involves 6 steps and 8
days. The BPLS was implemented in 2011 to improve business licensing procedures.
On the regional level, the DTI has initiated the Inter-Agency Business Process
Interoperability (IABPI) to streamline and fully automate export and import procedures.

Industrial Policy

Since 2012, the DTI-IDG has focused on a new industrial policy to create more and
higher quality jobs and attain sustainable and inclusive growth. Its new industrial policy
would enable the country to maximize the trade and investment opportunities from the
ASEAN Economic Community (AEC) and address the challenges arising from it.

Through the new industrial policy, the IDG aims to create the proper environment and
strengthen Philippine industries in order for them to become globally competitive. With
the private sector as the major driver of growth, the government acts as coordinator and
facilitator to implement policies and necessary support measures to address the
obstacles to the entry and growth of domestic firms.

Manufacturing Resurgence Program (MRP)

In pursuit of the Philippine governments goal of achieving inclusive growth, the

Department of Trade and Industry is implementing the Manufacturing Resurgence
Program (MRP). The MRP aims to rebuild the existing capacity of industries, strengthen
new ones, and maintain the competitiveness of industries with comparative advantage.

It also seeks to build-up agriculture-based manufacturing industries that generate

employment, and support small-holder farmers and agri-cooperatives through product
development, value-adding, and integration to big enterprises for marketing and
financing purposes.

PROVIDING STRATEGIC DIRECTIONS TO IMPROVE COMPETITIVENESS: GIFTS &

HOUSEWARE AND HOLIDAY DECOR INDUSTRY ROADMAPS TO BE PRESENTED
IN BOI FORUM
The roadmaps of the gifts & houseware and holiday dcor industries the blueprints
that will provide strategic directions leading to improved competitiveness and
productivity of these two sectors will be presented today (July 21, 2016) at the 16th
Trade and Industry Development (TID) Updates, a multi-sector forum aimed at informing
and updating various stakeholders on the industry development initiatives of the Board
of Investments (BOI).
These two industries are unique in a sense that majority of the products under the
sectors are handmade. The Philippines is known in the world for its quality
craftsmanship and now that the industry roadmaps for these sectors are ready for
implementation, the industries will have a definitive strategic guide to recover and regain
its lost market share, re-develop, and achieve sustained growth, said Trade Assistant
Secretary for Industry Development Dr. Rafaelita Aldaba.

We are pushing for these industries to be revitalized because these provide the muchneeded employment in the regions. As entering the market of these industries require
minimal capitalization, many startups venture into these industries, which are composed
mostly of micro, small, and medium enterprises (MSMEs). These industry roadmaps will
allow our MSMEs to participate in the value chain and in the vast ASEAN Economic
Community (AEC) market, Assistant Secretary Aldaba added.

The AEC establishes a single market and production base with free movement of
goods, services and investments across the 10 ASEAN member countries. To date,
some 96 percent of goods traded intra-ASEAN enjoys zero duty.

Gifts & houseware and holiday decor fall under the bigger umbrella of the lifestyle
industry. Both industries are small sectors comprised mostly of MSMEs and, to a great
extent, depend on processed agricultural crops and other industrial raw materials.

What is more unique in the industries is the use of indigenous materials in the
manufacture of products, which lend a Filipino touch to the articles produced, noted
Assistant Secretary Aldaba.

Through the BOIs Industry Roadmapping Project, the crafting of the industry roadmaps
of the two sectors was prepared by the University of the Philippines Institute of Small
Scale Industries (ISSI) on behalf of the industry players. The crafting was based on
gathered primary and secondary data through survey questionnaires, focused group
discussions, interview of experts, and workshops, including materials from the industry,
academe and government.

Dr. Nestor Raneses, Assistant Vice President for Administration of the University of the
Philippines Dilimanand Ms. Nova Navo of the Office of the Director of the UP ISSI will
jointly present the roadmaps of the two sectors. There will also be reactions from
panelists composed of Dr. Mina Gabor, former Department of Tourism Secretary and
founder of the Trade Promotion Organization; Mr. Delfin Bibat, a passionate supporter of
the industry, and Mr. Leonardo Rosete, Dean of the College of Fine Arts of the
University of the Philippines. An open forum follows after the presentations and
reactions.

A plaque of appreciation will also be given by the industry stakeholders represented by

the Home Accents Group of the Philippines and PHILDDA to former Trade Secretary
Adrian Cristobal Jr. in recognition of his valuable contribution towards the crafting of
industry roadmaps.

At the TID Updates, some of the industries works will also be showcased. A bigger
display and exhibit of these sectors meanwhile is currently running at the Glorietta
Activity Center.

The Industry Roadmapping Project launched BOIs strategic partnership with various
industries and sectors in the development of industry roadmaps. The IRP involves the
crafting and implementation of industry roadmaps that define its vision, goals, and
targets (in the short, medium, and long term), assess the industrys state and economic
performance, identify the binding constraints to its growth, and recommend strategies
for industry upgrading and development. The roadmaps are crafted and implemented by
the industry in collaboration with the BOI and other concerned stakeholders.

To date, there are 40 sectoral roadmaps submitted to the BOI. Of these, 32 roadmaps
have been completed and are currently being implemented or for implementation, while
the rest are still subject to finalization.
STRATEGY 1 OF THE PHILIPPINE EXPORT DEVELOPMENT PLAN
THE 2015-2017 Philippine Export Development Plan (PEDP) will implement a two-track
intervention to identified sectors named as key and emerging export sectors. These
sectors have been identified as having at least one of the following criteria: Those that
significantly contribute to exports, have high growth potential, and with competitive and
comparative advantages.
Key export sectors are those that have met one or several of the following criteria: (1) at
least more than $1-billion export revenues in 2014; (2) substantial impact on
employment; and/or (3) high-growth potential or remarkable export performance. The
key export sectors include electronics, motor vehicle and parts, coconut oil, information
technology and business-process management sector, technical and computer and
information services, and processed food and beverages. Emerging exports are those
products for which global demand has been increasing and for which Philippine exports
has been growing faster than world demand since 2006. Emerging export sectors
include chemicals, activated carbon, metal components and fish, both preserved and
fresh.
The intervention in the next three years would focus leveraging on the comparative
strengths of the country and in exploiting the opportunities presented by fast-growing
markets. Strategy 1 of the PEDP designs comprehensive packages of support for these
key and emerging sectors.
The packages of support aim to address vulnerabilities of a particular sector, increase
production capacity and provide solutions to cope with the challenges in the global
marketplace. Support packages could include Investment and marketing promotion,
business matching, training and capacity building, financing options, and support for
innovation, product development and design.

Programs will be formulated based on a global value-chain analysis of specific sectors.

Among these are the implementation of Phase 2 of the Product and Technology Holistic
Study Program: clustering industry road maps; sector global value-chain analysis
workshops; business matching; investment and marketing-promotion programs, which
include participation in various trade fairs, road shows, expositions and business
missions in the country and abroad; reverse trade fairs for industrial products and
branding programs.
In terms of capacity-building, the Department of Trade and Industry (DTI) spearheads
the Regional Interactive Platform for Philippine Exporters Plus, a program to handhold
companies in exporting by providing consultancy services, along with various training
programs to enhance their competitiveness.
There will also be active support programs, for innovation, product development and
design, which includes a proposal for advanced materials technology testing laboratory
for the electronics sector, development of national standards and research and
development assistance from the Department of Science and Technology, Commission
on Higher Education, academe, and the Technical Education Science and Development
Authority. To ensure all the programs effectiveness, a system of monitoring and
evaluation will be implemented by the DTI, the government agency taking the lead on
this initiative.
Market forces are the factors that influence the price and availability of goods and
services in a market economy, i.e. an economy with the minimum of government
involvement.
Market forces push prices up when supply declines and demand rises, and drive them
down when supply grows or demand contracts. When demand equals supply for a
product or service, the market is said to have reached equilibrium.
market forces In this area, market forces are likely to decide between
the various competing standards before official bodies make up their
minds. Furthermore, some of the changes seem to be decreasing market
forces and reducing efficiency. And when, eventually, market forces do take effect they
can correct too sharply. But it thinks that to rely solely on market forces is a messy way
of reining in a big borrower. However, the present government's stance on market
forces makes a return to interventionist regional planning unlikely. The level
of rent to qualify for full Housing Benefit subsidy will be determined according to
locally operating market forces. In its draft version the report declares that market
forces alone will not ensure more efficient use of energy.

Forces of demand and supply representing the aggregate influence of self-interested

buyers and sellers on price and quantity of the goods and services offered in a

market. In general, excess demand causes prices and quantity of supply to rise, and
excess supply causes them to fall.

Competitive intelligence (CI) enables an organization to

continually evolve in response to ever-changing
conditions. These conditions, or forces, can be classified
into ten distinct categories. The first two forces described
in this article market and technological forces drive
the velocity of change. In other words, changes in these
areas require your organization to adapt very quickly to
take advantage of opportunities and avoid threats. The
remaining eight forces affect the complexity of change
the number of issues that may affect an organization.

MARKET FORCES
Market forces are those that affect the supply, demand,
and price of products, and they come in many forms. The
competitive intelligence (CI) team commonly monitors and
analyzes
Unmet customer needs, because they can be
opportunities for your company to step in
New competitors, especially nontraditional
competitors from other industries

 Mergers and acquisitions that may strengthen a

competitor or cause you to lose a supplier or
distributor
Changes in the supply chain and distributors

TECHNOLOGICAL FORCES
Technological forces impact everything from how a
product is produced to how a customer uses it and may
affect every function in an organization, including what
products are developed, how marketing reaches
consumers, and how sales are tracked and managed.
Technological changes even provide new and more
effective ways to handle shipping and logistics. The CI
team can play an important role in your company by
tracking technological forces and providing insight into
how they affect each area of the company.

ECONOMIC FORCES
All sorts of economic events may impact a business, from
an economic downturn to sequestration to the government
deciding to invest in solar energy. The CI team must

continually monitor for such events so your organization

isnt blindsided by something that negatively affects its
bottom line and doesnt completely miss out on a golden
opportunity.

IDEOLOGICAL FORCES
To compete in the global marketplace, you need to
account for differences in ideologies. In some countries,
for example, bribery is not only an accepted but an
expected business practice. Certain practices that are
acceptable in capitalist economies are shunned in
communist or socialist states. In addition, religious beliefs
may affect purchase decisions in a particular country or
region. Competitive intelligence can play a key role in
ensuring that an organization enters an area without
committing a major faux pas.

POLITICAL AND GOVERNMENTAL

FORCES
In the United States, the government plays a major role in
determining how businesses operate, especially in relation

to international trade, taxation, and regulations. If your

business has government contracts, these forces may
have an even bigger impact. The CI team needs to keep
an eye on any government and political issues that may
affect your organization.

MEDIA FORCES
The media, including social media, can make or break a
company. A bad-news story can go viral in a matter of
minutes, and if your organization fails to deliver an
acceptable response, the repercussions can last for
months or even years. If the bad news is about a
competitor, that could be good news for you, so be
prepared to jump on such opportunities. The CI team can
help monitor the media so your organization isnt caught
off guard in either situation.

PSYCHOLOGICAL/SOCIOLOGICAL
FORCES
Psychological and sociological forces often drive what
consumers buy and where and how they buy it. More and

more consumers, for example, are purchasing products

online and reading reviews before making a purchase. As
consumer behavior evolves, your organization needs to
adapt to serve developing needs and preferences.
Purchase decisions are increasingly affected by social
media and attitudes of others as opposed to traditional
advertising.

MORAL/ETHICAL FORCES
The safest approach to dealing with moral and ethical
forces that impact business is to operate beyond reproach
so that consumers hold your organization in the highest
regard. Hire quality people to work for you, associate only
with reputable organizations, hold everyone in your
organization to the highest standards, and always treat
everyone (customers, suppliers, distributors, and even
competitors) with respect.
Competitive intelligence can help your organization gain
insight into whats expected and identify behaviors that
can get organizations into trouble. It can also help leaders

recognize problems in the organization that need to be

corrected.

WEATHER AND OTHER

ENVIRONMENTAL FORCES
Environmental issues relate to weather, natural disasters,
climate change, pollution, and anything else that could
impact business. A hurricane or tornado can completely
wipe out businesses. Major environmental events can
disrupt supply chains and increase the costs of raw
materials. Part of the CI teams job is to monitor for events
that could impact your organization and help develop
contingency plans in response to such events.

LEGAL/REGULATORY FORCES
National, state, and local laws and regulations may impact
everything from where you can set up shop to how much
you have to pay your employees and the measures you
must take to ensure their safety. Some regulations can be
very costly, and failing to honor the regulations may be
even more costly. Competitive intelligence can help your

organization monitor for changes rules and regulations so

its leaders are prepared to make the necessary
adjustments.
Market structure is defined by economists as the characteristics of
the market. It can be organizational characteristics or competitive
characteristics or any other features that can best describe a goods
and services market. The major characteristics that economist have
focused on in describing the market structures are the nature of
competition and the mode of pricing in that market. Market
structures can also be described as the number of firms in the market
that produce identical goods and services. The market structure has
great influence on the behavior of individuals firms in the market.
The market structure will affect how firm price their product in the
industry .For example in a competitive market the firms are price
takers while the industry has the sole duty of price setting. The
market structure will affect the supply of different commodity in
the market. When the competition is high there is a high supply of
commodity as different companies tries to dominate the markets. A
market structure will affect the barrier to entry for the companies
that intend to join that market. A monopoly markets structure has
the biggest level of barriers to entry while the perfectly competitive
market has zero percent level of barriers to entry. The other factors
that influence the firm behavior under a market structure are the
efficiency. Firm will be more efficient in a competitive market while
firms will be least efficient in a monopoly structure. The level of
competition in firms will be influenced by the market structure. A
competitive market structure and a monopoly will have different
levels of competition.
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Features of market structure

The number of firm operating in a market; It will
cover both the local and foreign markets.
The concentration ratio of company; this will show
the market share held by the large companies.
The amount and nature of costs in the market; It
will show how the different costs affect the
contestability in the market. It will include the
economies of scale and the presence of sunk costs.
The degree of vertical integration; Vertical
integration is the process of combining the different
stages of production and distribution to be managed
by a single enterprise.
The levels of product differentiation
The market churn or the customers turnover; this
will give the number of consumer that are willing to
change their consumers over a specific period of time
when there are market changes. The market rate of
market churn is an indicator of the level of brand
loyalty and influence of marketing and advertising on
customers choice.
The different types of market structure are; the monopolistic
competition also referred to as the competitive market. The
oligopoly market (called a duopoly when only two firms exist in the
market), a monopsony (there exist only one buyer), the monopoly
structure and the perfect competitive market. The types of market
structures can be grouped into the perfectly competitive structure
and the imperfectly competitive market structure. The imperfectly
competitive market structures are the oligopoly, duopoly, monopoly
and the monopolistic competition.

On the basis of competition, a market can be classified in the

following ways:
1. Perfect Competition
2. Monopoly
3. Duopoly
4. Oligopoly
5. Monopolistic Competition

1. Perfect Competition Market:

A perfectly competitive market is one in which the number of
buyers and sellers is very large, all engaged in buying and selling
a homogeneous product without any artificial restrictions and
possessing perfect knowledge of market at a time. In the words of
A. Koutsoyiannis, Perfect competition is a market structure
characterised by a complete absence of rivalry among the
individual firms. According to R.G. Lipsey, Perfect competition is
a market structure in which all firms in an industry are pricetakers and in which there is freedom of entry into, and exit from,
industry.
Characteristics of Perfect Competition:

The following are the conditions for the existence of perfect

competition:
(1) Large Number of Buyers and Sellers:
The first condition is that the number of buyers and sellers must
be so large that none of them individually is in a position to
influence the price and output of the industry as a whole. The
demand of individual buyer relative to the total demand is so small
that he cannot influence the price of the product by his individual
action.
Similarly, the supply of an individual seller is so small a fraction of
the total output that he cannot influence the price of the product
by his action alone. In other words, the individual seller is unable
to influence the price of the product by increasing or decreasing
its supply.
Rather, he adjusts his supply to the price of the product. He is
output adjuster. Thus no buyer or seller can alter the price by his
individual action. He has to accept the price for the product as
fixed for the whole industry. He is a price taker.
(2) Freedom of Entry or Exit of Firms:

The next condition is that the firms should be free to enter or

leave the industry. It implies that whenever the industry is earning
excess profits, attracted by these profits some new firms enter the
industry. In case of loss being sustained by the industry, some
firms leave it.
(3) Homogeneous Product:
Each firm produces and sells a homogeneous product so that no
buyer has any preference for the product of any individual seller
over others. This is only possible if units of the same product
produced by different sellers are perfect substitutes. In other
words, the cross elasticity of the products of sellers is infinite.
No seller has an independent price policy. Commodities like salt,
wheat, cotton and coal are homogeneous in nature. He cannot
raise the price of his product. If he does so, his customers would
leave him and buy the product from other sellers at the ruling
lower price.
The above two conditions between themselves make the average
revenue curve of the individual seller or firm perfectly elastic,
horizontal to the X-axis. It means that a firm can sell more or less

at the ruling market price but cannot influence the price as the
product is homogeneous and the number of sellers very large.
(4) Absence of Artificial Restrictions:
The next condition is that there is complete openness in buying
and selling of goods. Sellers are free to sell their goods to any
buyers and the buyers are free to buy from any sellers. In other
words, there is no discrimination on the part of buyers or sellers.
Moreover, prices are liable to change freely in response to
demand-supply conditions. There are no efforts on the part of the
producers, the government and other agencies to control the
supply, demand or price of the products. The movement of prices
is unfettered.
(5) Profit Maximisation Goal:
Every firm has only one goal of maximising its profits.
(6) Perfect Mobility of Goods and Factors:
Another requirement of perfect competition is the perfect mobility
of goods and factors between industries. Goods are free to move
to those places where they can fetch the highest price. Factors
can also move from a low-paid to a high-paid industry.

(7) Perfect Knowledge of Market Conditions:

This condition implies a close contact between buyers and sellers.
Buyers and sellers possess complete knowledge about the prices
at which goods are being bought and sold, and of the prices at
which others are prepared to buy and sell. They have also perfect
knowledge of the place where the transactions are being carried
on. Such perfect knowledge of market conditions forces the
sellers to sell their product at the prevailing market price and the
buyers to buy at that price.
(8) Absence of Transport Costs:
Another condition is that there are no transport costs in carrying of
product from one place to another. This condition is essential for
the existence of perfect competition which requires that a
commodity must have the same price everywhere at any time. If
transport costs are added to the price of the product, even a
homogeneous commodity will have different prices depending
upon transport costs from the place of supply.
(9) Absence of Selling Costs:

Under perfect competition, the costs of advertising, salespromotion, etc. do not arise because all firms produce a
homogeneous product.
Perfect Competition vs Pure Competition:
Perfect competition is often distinguished from pure competition,
but they differ only in degree. The first five conditions relate to
pure competition while the remaining four conditions are also
required for the existence of perfect competition. According to
Chamberlin, pure competition means, competition unalloyed with
monopoly elements, whereas perfect competition involves
perfection in many other respects than in the absence of
monopoly. The practical importance of perfect competition is not
much in the present times for few markets are perfectly
competitive except those for staple food products and raw
materials. That is why, Chamberlin says that perfect competition
is a rare phenomenon.
Though the real world does not fulfil the conditions of perfect
competition, yet perfect competition is studied for the simple
reason that it helps us in understanding the working of an
economy, where competitive behaviour leads to the best
allocation of resources and the most efficient organisation of

production. A hypothetical model of a perfectly competitive

industry provides the basis for appraising the actual working of
economic institutions and organisations in any economy.

2. Monopoly Market:
Monopoly is a market situation in which there is only one seller of
a product with barriers to entry of others. The product has no
close substitutes. The cross elasticity of demand with every other
product is very low. This means that no other firms produce a
similar product. According to D. Salvatore, Monopoly is the form
of market organisation in which there is a single firm selling a
commodity for which there are no close substitutes. Thus the
monopoly firm is itself an industry and the monopolist faces the
industry demand curve.
The demand curve for his product is, therefore, relatively stable
and slopes downward to the right, given the tastes, and incomes
of his customers. It means that more of the product can be sold at
a lower price than at a higher price. He is a price-maker who can
set the price to his maximum advantage.
However, it does not mean that he can set both price and output.
He can do either of the two things. His price is determined by his
demand curve, once he selects his output level. Or, once he sets

the price for his product, his output is determined by what

consumers will take at that price. In any situation, the ultimate aim
of the monopolist is to have maximum profits.

Characteristics of Monopoly:
The main features of monopoly are as follows:
1. Under monopoly, there is one producer or seller of a particular
product and there is no difference between a firm and an industry.
Under monopoly a firm itself is an industry.
2. A monopoly may be individual proprietorship or partnership or
joint stock company or a cooperative society or a government
company.
3. A monopolist has full control on the supply of a product. Hence,
the elasticity of demand for a monopolists product is zero.
4. There is no close substitute of a monopolists product in the
market. Hence, under monopoly, the cross elasticity of demand
for a monopoly product with some other good is very low.
5. There are restrictions on the entry of other firms in the area of
monopoly product.

6. A monopolist can influence the price of a product. He is a pricemaker, not a price-taker.

7. Pure monopoly is not found in the real world.
8. Monopolist cannot determine both the price and quantity of a
product simultaneously.
9. Monopolists demand curve slopes downwards to the right.
That is why, a monopolist can increase his sales only by
decreasing the price of his product and thereby maximise his
profit. The marginal revenue curve of a monopolist is below the
average revenue curve and it falls faster than the average
revenue curve. This is because a monopolist has to cut down the
price of his product to sell an additional unit.

3. Duopoly:
Duopoly is a special case of the theory of oligopoly in which there
are only two sellers. Both the sellers are completely independent
and no agreement exists between them. Even though they are
independent, a change in the price and output of one will affect
the other, and may set a chain of reactions. A seller may,
however, assume that his rival is unaffected by what he does, in
that case he takes only his own direct influence on the price.

If, on the other hand, each seller takes into account the effect of
his policy on that of his rival and the reaction of the rival on
himself again, then he considers both the direct and the indirect
influences upon the price. Moreover, a rival sellers policy may
remain unaltered either to the amount offered for sale or to the
price at which he offers his product. Thus the duopoly problem
can be considered as either ignoring mutual dependence or
recognising it.

4. Oligopoly:
Oligopoly is a market situation in which there are a few firms
selling homogeneous or differentiated products. It is difficult to
pinpoint the number of firms in competition among the few. With
only a few firms in the market, the action of one firm is likely to
affect the others. An oligopoly industry produces either a
homogeneous product or heterogeneous products.
The former is called pure or perfect oligopoly and the latter is
called imperfect or differentiated oligopoly. Pure oligopoly is found
primarily among producers of such industrial products as
aluminium, cement, copper, steel, zinc, etc. Imperfect oligopoly is
found among producers of such consumer goods as automobiles,

cigarettes, soaps and detergents, TVs, rubber tyres, refrigerators,

typewriters, etc.

Characteristics of Oligopoly:
In addition to fewness of sellers, most oligopolistic
industries have several common characteristics which are
explained below:
(1) Interdependence:
There is recognised interdependence among the sellers in the
oligopolistic market. Each oligopolist firm knows that changes in
its price, advertising, product characteristics, etc. may lead to
counter-moves by rivals. When the sellers are a few, each
produces a considerable fraction of the total output of the industry
and can have a noticeable effect on market conditions.
He can reduce or increase the price for the whole oligopolist
market by selling more quantity or less and affect the profits of the
other sellers. It implies that each seller is aware of the pricemoves of the other sellers and their impact on his profit and of the
influence of his price-move on the actions of rivals.
Thus there is complete interdependence among the sellers with
regard to their price-output policies. Each seller has direct and

ascertainable influences upon every other seller in the industry.

Thus, every move by one seller leads to counter-moves by the
others.
(2) Advertisement:
The main reason for this mutual interdependence in decision
making is that one producers fortunes are dependent on the
policies and fortunes of the other producers in the industry. It is for
this reason that oligopolist firms spend much on advertisement
and customer services.
As pointed out by Prof. Baumol, Under oligopoly advertising can
become a life-and-death matter. For example, if all oligopolists
continue to spend a lot on advertising their products and one
seller does not match up with them he will find his customers
gradually going in for his rivals product. If, on the other hand, one
oligopolist advertises his product, others have to follow him to
keep up their sales.
(3) Competition:
This leads to another feature of the oligopolistic market, the
presence of competition. Since under oligopoly, there are a few
sellers, a move by one seller immediately affects the rivals. So

each seller is always on the alert and keeps a close watch over
the moves of its rivals in order to have a counter-move. This is
true competition.
(4) Barriers to Entry of Firms:
As there is keen competition in an oligopolistic industry, there are
no barriers to entry into or exit from it. However, in the long run,
there are some types of barriers to entry which tend to restraint
new firms from entering the industry.
They may be:
(a) Economies of scale enjoyed by a few large firms; (b) control
over essential and specialised inputs; (c) high capital
requirements due to plant costs, advertising costs, etc. (d)
exclusive patents and licenses; and (e) the existence of unused
capacity which makes the industry unattractive. When entry is
restricted or blocked by such natural and artificial barriers, the
oligopolistic industry can earn long-run super normal profits.
(5) Lack of Uniformity:
Another feature of oligopoly market is the lack of uniformity in the
size of firms. Finns differ considerably in size. Some may be

small, others very large. Such a situation is asymmetrical. This is

very common in the American economy. A symmetrical situation
with firms of a uniform size is rare.
(6) Demand Curve:
It is not easy to trace the demand curve for the product of an
oligopolist. Since under oligopoly the exact behaviour pattern of a
producer cannot be ascertained with certainty, his demand curve
cannot be drawn accurately, and with definiteness. How does an
individual seller s demand curve look like in oligopoly is most
uncertain because a sellers price or output moves lead to
unpredictable reactions on price-output policies of his rivals,
which may have further repercussions on his price and output.
The chain of action reaction as a result of an initial change in
price or output, is all a guess-work. Thus a complex system of
crossed conjectures emerges as a result of the interdependence
among the rival oligopolists which is the main cause of the
indeterminateness of the demand curve.
If the oligopolist seller does not have a definite demand curve for
his product, then how does he affect his sales. Presumably, his
sales depend upon his current price and those of his rivals.

However, a number of conjectural demand curves can be

imagined.
For example, in differentiated oligopoly where each seller fixes a
separate price for his product, a reduction in price by one seller
may lead to an equivalent, more, less or no price reduction by
rival sellers. In each case, a demand curve can be drawn by the
seller within the range of competitive and monopoly demand
curves.
Leaving aside retaliatory price movements, the individual sellers
demand curve under oligopoly for both price cuts and increases is
neither more elastic than under perfect or monopolistic
competition nor less elastic than under monopoly. It may still be
indefinite and indeterminate.
This situation is shown in Figure 1 where KD1 is the elastic
demand curve and MD is the less elastic demand curve. The
oligopolies demand curve is the dotted kinked KPD. The reason
is quite simple. If a seller reduces the price of his product, his
rivals also lower the prices of their products so that he is not able
to increase his sales.

So the demand curve for the individual sellers product will be less
elastic just below the present price P (where KD1and MD curves
are shown to intersect). On the other hand, when he raises the
price of his product, the other sellers will not follow him in order to
earn larger profits at the old price. So this individual seller will
experience a sharp fall in the demand for his product.
Thus his demand curve above the price P in the segment KP will
be highly elastic. Thus the imagined demand curve of an
oligopolist has a comer or kink at the current price P. Such a
demand curve is much more elastic for price increases than for
price decreases.
(7) No Unique Pattern of Pricing Behaviour:
The rivalry arising from interdependence among the oligopolists
leads to two conflicting motives. Each wants to remain
independent and to get the maximum possible profit. Towards this

end, they act and react on the price-output movements of one

another in a continuous element of uncertainty.
On the other hand, again motivated by profit maximisation each
seller wishes to cooperate with his rivals to reduce or eliminate
the element of uncertainty. All rivals enter into a tacit or formal
agreement with regard to price-output changes. It leads to a sort
of monopoly within oligopoly.
They may even recognise one seller as a leader at whose
initiative all the other sellers raise or lower the price. In this case,
the individual sellers demand curve is a part of the industry
demand curve, having the elasticity of the latter. Given these
conflicting attitudes, it is not possible to predict any unique pattern
of pricing behaviour in oligopoly markets.

5. Monopolistic Competition:
Monopolistic competition refers to a market situation where there
are many firms selling a differentiated product. There is
competition which is keen, though not perfect, among many firms
making very similar products. No firm can have any perceptible
influence on the price-output policies of the other sellers nor can it
be influenced much by their actions. Thus monopolistic

competition refers to competition among a large number of sellers

producing close but not perfect substitutes for each other.
Its Features:
The following are the main features of monopolistic
competition:
(1) Large Number of Sellers:
In monopolistic competition the number of sellers is large. They
are many and small enough but none controls a major portion of
the total output. No seller by changing its price-output policy can
have any perceptible effect on the sales of others and in turn be
influenced by them. Thus there is no recognised interdependence
of the price-output policies of the sellers and each seller pursues
an independent course of action.
(2) Product Differentiation:
One of the most important features of the monopolistic competition is differentiation. Product differentiation implies that products
are different in some ways from each other. They are
heterogeneous rather than homogeneous so that each firm has
an absolute monopoly in the production and sale of a

differentiated product. There is, however, slight difference

between one product and other in the same category.
Products are close substitutes with a high cross-elasticity and not
perfect substitutes. Product differentiation may be based upon
certain characteristics of the products itself, such as exclusive
patented features; trade-marks; trade names; peculiarities of
package or container, if any; or singularity in quality, design,
colour, or style. It may also exist with respect to the conditions
surrounding its sales.
(3) Freedom of Entry and Exit of Firms:
Another feature of monopolistic competition is the freedom of
entry and exit of firms. As firms are of small size and are capable
of producing close substitutes, they can leave or enter the
industry or group in the long run.
(4) Nature of Demand Curve:
Under monopolistic competition no single firm controls more than
a small portion of the total output of a product. No doubt there is
an element of differentiation nevertheless the products are close
substitutes. As a result, a reduction in its price will increase the
sales of the firm but it will have little effect on the price-output

conditions of other firms, each will lose only a few of its

customers.
Likewise, an increase in its price will reduce its demand
substantially but each of its rivals will attract only a few of its
customers. Therefore, the demand curve (average revenue curve)
of a firm under monopolistic competition slopes downward to the
right. It is elastic but not perfectly elastic within a relevant range of
prices of which he can sell any amount.
(5) Independent Behaviour:
In monopolistic competition, every firm has independent policy.
Since the number of sellers is large, none controls a major portion
of the total output. No seller by changing its price-output policy
can have any perceptible effect on the sales of others and in turn
be influenced by them.
(6) Product Groups:
There is no any industry under monopolistic competition but a
group of firms producing similar products. Each firm produces a
distinct product and is itself an industry. Chamberlin lumps
together firms producing very closely related products and calls
them product groups, such as cars, cigarettes, etc.

(7) Selling Costs:

Under monopolistic competition where the product is
differentiated, selling costs are essential to push up the sales.
Besides, advertisement, it includes expenses on salesman,
allowances to sellers for window displays, free service, free
sampling, premium coupons and gifts, etc.
(8) Non-price Competition:
Under monopolistic competition, a firm increases sales and profits
of his product without a cut in the price. The monopolistic
competitor can change his product either by varying its quality,
packing, etc. or by changing promotional programmes.
The features of market structures are shown in Table 1.

A market is a set of buyers and sellers, commonly referred to as agents, who through
their interaction, both real and potential, determine the price of a good, or a set of
goods. The concept of a market structure is therefore understood as those
characteristics of a market that influence the behaviour and results of the firms
working in that market.
The main aspects that determine market structures are: the number of agents in the
market, both sellers and buyers; their relative negotiation strength, in terms of ability
to set prices; the degree of concentration among them; the degree of differentiation
and uniqueness of products; and the ease, or not, of entering and exiting the market.
The interaction and differences between these aspects allow for the existence of
several market structures, from which we can highlight the following:
-Perfect competition: the efficient market where goods are produced using the most
efficient techniques and the least amount of factors. This market is considered to be

unrealistic but it is nevertheless of special interest for hypothetical and theoretical

reasons.
-Imperfect competition, which includes all situations that differ from perfect
competition. Sellers and buyers can influence in the determination of the price of
goods, leading to efficiency losses. Imperfect competition includes market structures
such as:
-Monopoly: it represents the opposite of perfect competition. This market is composed
of a sole seller who will therefore have full power to set prices.
-Oligopoly: in this case, products are offered by a series of firms. However, the
number of sellers is not large enough to guarantee perfect competition prices. These
markets are usually studied by analysingduopolies, since these are easier to model and
the main conclusions can be extrapolated to oligopolies.
-Monopolistic competition: this market is formed by a high number of firms which
produce a similar good that can be seen as unique due to differentiation, that will
allow prices to be held up higher than marginal costs. In other words, each producer
will be considered as a monopoly thanks to differentiation, but the whole market s
considered as competitive because the degree of differentiation is not enough to
undermine the possibility of substitution effects.
-Monopsony: its similar to a monopoly, but in this case there are many firms selling
products, but only one buyer, the monopsonist, who will have full power when
negotiating prices.
-Oligopsony: similar to oligopolies, but with buyers. Sellers will have to deal with the
increased negotiating power of the only few buyers in the market, the oligopsonists.