MARKET STRUCTUTRE

In economics market structure is also known as market form. The word market structure describes the state of a market with respect to competition. Markets can be distinguished by the number of firms in the market and the type of product that they sell. Market structure is determined by a number of factors. The presence or absence of these factors will determine the nature of the market. Thus a market with differentiated products with some entry barriers and large number of sellers would be known as monopolistically competitive market and one with same features but with few sellers would be known as an Oligopoly market. Ideal markets are full with economic freedoms and they are the most competitive markets. Such markets are known as perfectly competitive markets. The competitiveness of the market depends upon the power of individual firms to influence market prices. The less power an individual firm has to influence the market in which it sells its products, the more competitive that market is. The extreme form of competitive market structure comes into existence when each firm in a market has zero market power. Market

structures are therefore either perfect or imperfect. Between perfect and imperfect competition, the two ends of marker structure, are number of markets will be found. The nature of these markets will be determined by a combination of factors. These factors or the determinants of market structure are as follows: Freedom of entry and exit. Nature of the product, i.e. whether the product is homogenous or differentiated? Control over supply and output or the absence of it Control over price or the absence of control. Barriers to entry and exit.

TYPES OF MARKET STRUCTURE

Based on the factors determining market structures, the following types of market structures are found:
1)

2)

3)

4)

5)

A perfectly competitive market consists of a very large number of firms producing a homogenous products. Monopolistic competition is also a a competitive market where there are a large number of independent firms which have a very small proportion of the market share. Oligopoly in which a market is dominated by a small number of firms which own more than 40% of the market share. Duopoly is a market consisting of only two sellers. Monopoly is a market where there is only one producer or seller of a product or service.

The imperfectly competitive structure is quite identical to the realistic market conditions where

some monopolistic competitors, monopolists, oligopolists, and duopolists exist and dominate the market conditions. The elements of Market Structure include the number and size distribution of firms, entry conditions, and the extent of differentiation.

MONOPOLY
Monopoly is at the other extreme end of the market structure. It is the negation of competition. It is therefore the opposite of a competitive firm. The monopoly firm is also the industry and hence produces the entire industrys output. The monopolist is a price maker as against the price taking competitive firm. A monopoly firm may indulge in price discrimination, i.e. charging different prices to different consumers in different markets. In economics, a monopoly exists when a specific individual or an enterprise has sufficient control over a particular product or service to determine significantly the terms on which other individuals shall have access to it. (This is in contrast to a monopsony which relates to a single entity's control over a market to purchase a good or service, and contrasted with oligopoly where a few entities exert considerable influence over an industry). Monopolies are thus

characterised by a lack of economic competition to produce the good or service and a lack of viable substitute goods. The verb "monopolise" refers to the process by which a firm gains persistently greater market share than what is expected under perfect competition. A monopoly must be distinguished from monopsony, in which there is only one buyer of a product or service ; a monopoly may also have monopsony control of a sector of a market. Likewise, a monopoly should be distinguished from a cartel (a form of oligopoly), in which several providers act together to coordinate services, prices or sale of goods. Monopolies, monopsonies and oligopolies are all situations where one or a few of the entities have market power and therefore must interact with their customers (monopoly), suppliers (monopsony) and the other firms (oligopoly) in a game theoretic manner - meaning that expectations about their behavior affects other players' choice of strategy and vice versa. This is to be contrasted with the model of perfect competition where firms are price takers and do not have market power. Monopolists typically produce fewer goods and sell them at a higher price than under perfect competition, resulting in abnormal and sustained profit. Monopolies can form naturally or through vertical or horizontal mergers. A monopoly is said to be coercive when the monopoly firm actively prohibits competitors

from entering the field or punishes competitors who do. In many jurisdictions, competition laws place specific restrictions on monopolies. Holding a dominant position or a monopoly in the market is not illegal in itself, however certain categories of behaviour can, when a business is dominant, be considered abusive and therefore be met with legal sanctions. A government-granted monopoly or legal monopoly, by contrast, is sanctioned by the state, often to provide an incentive to invest in a risky venture or enrich a domestic interest group. Patents, copyright, and trademarks are all examples of government granted and enforced monopolies. The government may also reserve the venture for itself, thus forming a government monopoly. The characteristics of monopoly are as follows: There are high barriers to entry. The firm controls either the price of the output. The firm makes abnormal profits in both the time periods. Prices are in excess of marginal cost. Single seller: In a monopoly there is one seller of the good who produces all the output. Therefore, the whole market is being served by a single firm, and for practical purposes, the firm is the same as the industry. Price Discrimination: A monopolist can change the price and quality of the product. He sells more quantities charging less price against the

product in a highly elastic market and sells less quantities charging high price in a less elastic market. Market power: Market power is the ability to affect the terms and conditions of exchange so that the price of the product is set by the firm (price is not imposed by the market as in perfect competition). Although a monopoly's market power is high it is still limited by the demand side of the market. A monopoly faces a negatively sloped demand curve not a perfectly inelastic curve. Consequently, any price increase will result in the loss of some customers.

Advantages
Monopoly is an ideal market structure if it is a natural monopoly. It encourages Research & Development. It encourages innovation. Economies of scale can be gained and consumers may benefit. No risk of over production. There is enough capital for research. Reduction in price of goods. Efficiently use of resource.

 Control over entire market.

DISADVANTAGES
The monopolists preference to high price than to high output leads to exploitation of consumers. Since the output is restricted, the potential for supply is limited. Consumer choice is limited in monopoly markets. Due to complacency, a monopolist may become inefficient Exploitation of labour, i.e. when price is greater than marginal cost. Increase in price of product.

UNITED STATES VS. MICROSOFT

United States vs. Microsoft was a set of consolidated civil actions filed against Microsoft Corporation pursuant to the Sherman Antitrust Act on May 18, 1998 by the United States Department of Justice (DOJ) and 20 U.S. states. Joel I. Klein was the lead prosecutor. The plaintiffs alleged that Microsoft abused monopoly power on Intel-based personal computers in its handling of operating system sales and web browser sales. The issue central to the case was whether Microsoft was allowed to bundle its flagship

Internet Explorer (IE) web browser software with its Microsoft Windows operating system. Bundling them together is alleged to have been responsible for Microsoft's victory in the browser wars as every Windows user had a copy of Internet Explorer. It was further alleged that this restricted the market for competing web browsers (such as Netscape Navigator or Opera) that were slow to download over a modem or had to be purchased at a store. Underlying these disputes were questions over whether Microsoft altered or manipulated its application programming interfaces (APIs) to favor Internet Explorer over third party web browsers, Microsoft's conduct in forming restrictive licensing agreements with original equipment manufacturer (OEMs), and Microsoft's intent in its course of conduct. Microsoft stated that the merging of Microsoft Windows and Internet Explorer was the result of innovation and competition, that the two were now the same product and were inextricably linked together and that consumers were now getting all the benefits of IE for free. Those who opposed Microsoft's position countered that the browser was still a distinct and separate product which did not need to be tied to the operating system, since a separate version of Internet Explorer was available for Mac OS. They also asserted that IE was not really free because its development and marketing costs may have kept the price of Windows higher than it might otherwise have been. The case was tried before Judge Thomas Penfield Jackson in the United

States District Court for the District of Columbia. The DOJ was initially represented by David Boies.

HISTORY
The U.S. government's interest in Microsoft's affairs had begun in 1991 with an inquiry by the Federal Trade Commission over whether Microsoft was abusing its monopoly on the PC

operating system market. The commissioners deadlocked with a 2-2 vote in 1993 and closed the investigation, but the Department of Justice opened its own investigation on August 21 of that year, resulting in a settlement on July 15, 1994 in which Microsoft consented not to tie other Microsoft products to the sale of Windows but remained free to integrate additional features into the operating system. In the years that followed, Microsoft insisted that Internet Explorer (which first appeared in the Plus! Pack sold separately from Windows 95) was not a product but a feature which it was allowed to add to Windows, although the DOJ did not agree with this definition. In its 2008 Annual Report, Microsoft stated: Lawsuits brought by the U.S. Department of Justice, 18 states, and the District of Columbia in two separate actions were resolved through a Consent Decree that took effect in 2001 and a Final Judgment entered in 2002. These proceedings imposed various constraints on our Windows operating system businesses. These constraints include limits on certain contracting practices, mandated disclosure of certain software program interfaces and protocols, and rights for computer manufacturers to limit the visibility of certain Windows features in new PCs. We believe we are in full compliance with these rules. However, if we fail to comply with them, additional restrictions could be imposed on us that would adversely affect our business.

What makes Microsoft a monopoly?

It's that their entire product line rests upon state enforcement of legal monopolies of duplication called "copyrights" (that's what a copyright is: a monopoly on the duplication of an

intangible such as software). And the most outrageous thing is that they outsource their costs of enforcement to you, the taxpayer. Let's go with an example here. Imagine you want to enter the potato business. You buy one potato, and you plant it. You invest time and energy of your own into multiplying said potato and making a huge-ass farm, and when time comes for harvest, you can pick them up and sell them in direct competition with the guy who sold you the first potato. Now imagine you wanted to sell Windows instead of potatoes: you buy a copy of Windows, duplicate it N times (certainly a cheaper investment, but an investment in time and money nonetheless), and start selling it. Exactly like in the potato example above. What happens here is that armed dudes show up at your doorstep and yank you into a cell, and your assets are taken away from you, whether they were involved in the commission of this act, or not. Now you are poor and possibly the shameful owner of a two-inch-wide gaping anus. So, as you can probably see now, it is a crime to compete with Microsoft in the same products. You must invent your own non-potato if you want to compete with them, an act after which you are no longer competing in their products, but selling a substitute for their products. Essentially as absurd as a dairy product company claiming a monopoly on butter, so everybody else must sell margarine or else. Imagine a world where there is only one purveyor of tangible products -- it'd be an epic disaster of the most abject variety of mercantilism, right? This is exactly what happens

with software -- a disaster -- but you don't see how the alternatives could look like because you have always lived under this copyright enforcement regime. What you have is mercantilism for software now, only perhaps a bit mitigated because the free software movement -the only area in which competition in the same product is explicitly permitted -- has successfully carved a small segment of the world. What you have now is the epitome of absurdity, but you don't feel it's absurd because you are used to it. It is really that simple: if you compete with them, the state snatches you and puts you in a cage. The fact that nobody else is allowed to compete with them on the Windows and Office businesses, that is what makes them a monopoly. They have an assortment of little monopolies enforced by the state and thus the moniker "monopolist" is objectively welldeserved, independently of their market share.

Why is Microsoft a Monopoly?

This is an important question because monopolies are not natural. Usually, when a company becomes big and monopolistic, it also becomes inefficient. Then, the market throws up competitors who see the overpriced products of Big Inc. as an opportunity. Understand, bigness and inefficiency go together. The larger a firm, the more likely it is to suffer from friction (when people and processes run into each other and jam); to suffer from destructive politics and conspiracies, and to lose creative focus. So, for a monopoly to develop, there have to be other issues involved, for example, political connections, the need to raise huge amounts of capital, or fundamental technological necessity. So, when a company goes from nothing, to monopoly, in only twenty years, there has to be a reason that goes beyond the market. In the case of Microsoft, I think there are two reasons. First, whenever you have a communication or data system there have to be standards. That means that there has to be so meone to create standards, and someone to enforce the standards. Second, new technology. Ill start with technology. Microsoft became a monopoly because they were able to create and enforce universal data interaction standards for personal computers. Microsoft did this by creating a series of operating systems (DOS, then Windows), and by defining the kind of machine that could run their OSs. Microsoft was successful at this because, unlike Apple and Commodore it set about creating nonexclusive standards that allowed anyone to get into the computer hardware business, and fill every market niche.

So, Microsoft products were able to be in every market niche. The strategy that made Microsoft a monopoly worked because a communication/data system is valuable only in terms of the number potential users and the number of possible interactions. Microsoft became a monopoly because they created the most universally useful standard for desktop computers. And, the most universally useful standard is the one most valuable to computer users. The problem is that in an unregulated market, the Microsoft no longer has an economic reason to produce a quality product because of its monopoly.

NEW TECHNOLOGY :

Whenever a new technology opens up and goes into a dynamic growth mode, the first players gain huge advantages because they are the first to gain the experience, the invested capital, and the people. So, when competitors come into the market, they have to catch up (with a firm that is probably a moving target) before they can compete. Microsoft is a good example of this; back in 1981 (after creating Applesoft Basic for Apple Computer) they entered the OS market with MS DOS 1.0 (the first Macs didnt appear until 1984). Within a few years Microsoft had over 90% percent of the OS market. The Microsoft monopoly was possible, in part, because of the incredible advantages of being first. And, the monopoly made Bill Gates the wealthiest man in the United States. Understand, there is nothing new about this, let me give you a little history. Between 1850 and 1890, several technologies (steam power, metallurgy, and

electricity) went dynamic almost simultaneously. Naturally, the first people in on the technology had enormous opportunities, and many became incredibly wealthy as their firms became monopolies. There were, for example, railroad barons, steel tycoons, and shipping magnates. It was being involved with the new technologies at the beginning that gave these men (and a few women) the chance to become awesomely wealthy. Of course, there were excesses. These men gained an inordinate amount of power, and were probably very arrogant to begin with (its arrogant belief that Im right, and the world is wrong that makes someone abandon a perfectly good job to work in a garage on some blue sky project, say, a personal computer). What if you owned all the railroads going into say, Boston, Massachusetts, back in 1880? Today that would be like owning the airports, the freeways, and the railroads going into that town. And you could make everyone would have to pay your rates. Eventually, Congress responded with various Antitrust statutes. The first targets of the Justice Department under the new laws were the railroad trusts, and the Standard Oil Monopoly (imagine what it would be like to have just one brand of gasoline, motor oil, and heating oil?). More recently, in the late 1970s, digital microelectronics technology went dynamic, and the monopoly creation cycle started again. As a result, today we have Microsoft. Understand, Microsoft is a traditional technology generated monopoly, and Bill

Gates is a traditional tycoon (and he is behaving like a traditional tycoon). So, the federal courts are once again being asked to bust a trust.

THE ECONOMICS

OF

COMMUNICATION SYSTEMS

Before I go on with Microsoft, there is something I should explain. Communications systems have their own unique economic rules. So, there is a telecommunications sector of the economy because of these rules. (I know! I know! Economic rules are supposed to be made in Washington by Newt Gingrich, and we shouldnt say anything unholynomic). The basic economic rule is this: A communication system is only valuable in terms of the number of people who can participate. The more participants in the system, the greater the value to individual users, and the greater the profits to the promoters of the system. For example, when we speak, or write, we use a language standard to ensure understanding. The language standard we use (in this case English) is enforced by the public schools, where most of us learned to read, write, and spell. The fact that we (mostly) use the same language standard has enormous benefits; it makes our public life go more smoothly, it makes our businesses more profitable, and it improves the quality of our lives. Another case is the telephone system in the United States. In the early years of this century the telephone system grew enormously, dominated by the AT&T monopoly. After the Bell patents expired, many new companies entered the telephone business; but AT&T was able to maintain its monopoly in spite of the pressure. Here again, the value of the

telephone system to individual users (and profitability to its promoters) depended on the total number of users. So, to maximize the value of the telephone system to AT&Ts stock holders, the value to individual users had to be maximized. To maximize the value of the telephone system, every telephone had to be able to connect to every other telephone in the world. So, there had to be common standards. Having twenty (or a hundred, or a thousand) little standards would have destroyed the value of the phone system for its users and its promoters (and AT&Ts stock holders). So, someone had to create common standards for all phones, and someone had to enforce these standards. Standards for everything from the voltages and amperages used by each phone, to the dialing systems, to common phone rates, and so on. Without these standards, the phone system could not be very valuable to anyone. AT&T remained a monopoly because of its ability to create and enforce standards. Of course, the government came in and regulated the AT&T monopoly. And this made the Bell System monopoly work even better because it cut off the traditional roads to monopoly profits (overcharging, gauging, etc.). Understand, the monopoly worked because the value of AT&T to its stockholders was directly related to the of value of telephone service to each individual user. The more the phone system was used, the greater the profits to the stockholders. The higher the quality of service, the more the system was used, and the greater the profits. So, AT&T had to maintain consistently high standards of service (rare for a monopoly) to maintain its profits in a regulated environment.

The courts have ruled that Microsoft holds a monopoly position in Intel PC Operating Systems. Business users have long been aware of Microsoft's lock on office productivity applications that require them to use MS Office in order to remain compatible with their business partners and customers. And web-surfing users are now using Internet Explorer in a ratio of about 8:1 over alternative browsers. But one aspect of Microsoft's monopoly is more fundamental than any of those; the investment in skill, experience, training, and tools of Windows software developers themselves. Those programmers, who have logged many long sessions of coding for the Windows environments, and with their deep immersion in its assumptions, tools, and API's, represent millions of person-years of Microsoft assets. For years it has been a difficult decision for a professional developer to choose an environment other than Windows. The scale of that market dwarfs its competitors and opens to developers many more specialty markets than any alternative platform. Further, the sheer size of the Windows installed base is seen as a hedge against market change. Windows is perceived as a platform that will be with us for a long time to come. Because it can take years of effort to reach the highest levels of productivity in a complex development environment, Windows-specialized programmers have, through economic necessity, been unable to switch to a different platform. With a large majority of developers writing code for Windows, the continued dominance of Windows applications was also assured. The monopoly was elegantly self-perpetuating. Many companies, failing to appreciate the depth of

Microsoft's monopoly and its determination to defend it, squandered valuable resources probing Microsoft's markets for an opportunity. After several spectacular failures, it seemed nearly impossible for such a locked market to break free of this cycle. While Microsoft once made the fending off of mighty IBM look easy, the Linux phenomenon presents a very different kind of challenge. It needs no profits, corporate partnerships, or investors in order to succeed. Linux depends only on hobbyists' passion for programming and their self-imposed standards of quality in their own work. Further, the Linux community seems to draw motivation from its dissatisfaction with the computing landscape that Microsoft has created.

Acknowledgement

I owe a great thanks to many people who helped and supported me during this project. My deepest thanks to lecturer, Bhavna Mam the guide of the project for guiding and correcting various documents of mine with attention and care. She has taken pain to go through the project and and make necessary connection as when needed. I would also thank my institution without whom this project would have been a distant reality. I also extend my heartfelt thanks to my family and well-wishers.

Managerial

Economics
MARKET STRUCTURE
Pratik m.shah f.y.b.m.s s-124