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The market structure and the degree of competitiveness in the industry affect a firm’s pricing and output strategy and, eventually, its long-run profitability. Chapter 4 introduce the firm and market structures. Inviting you refer. | Chapter 4 The Firm and Market Structures Presenter’s name Presenter’s title dd Month yyyy 1 1. Introduction Copyright © 2014 CFA Institute 2 The market structure and the degree of competitiveness in the industry affect a firm’s pricing and output strategy and, eventually, its long-run profitability. Page 143 Notes to the presenter: It is important that the link between market structure and financial analysis be made upfront. This link is key to the participants’ understanding the relevance of this material. Market structure refers to the number and relative size of firms in an industry, and their behavior in competing for input resources and competing in the output market. The degree of competition refers to the presence of barriers (legal, resources, governmental, etc.) to entry and exit that may inhibit the free flow of resources to their best use. Profitability refers to economic profit, not accounting profit. 2 2. Analysis of market structures Copyright © 2014 CFA Institute 3 LOS: | Chapter 4 The Firm and Market Structures Presenter’s name Presenter’s title dd Month yyyy 1 1. Introduction Copyright © 2014 CFA Institute 2 The market structure and the degree of competitiveness in the industry affect a firm’s pricing and output strategy and, eventually, its long-run profitability. Page 143 Notes to the presenter: It is important that the link between market structure and financial analysis be made upfront. This link is key to the participants’ understanding the relevance of this material. Market structure refers to the number and relative size of firms in an industry, and their behavior in competing for input resources and competing in the output market. The degree of competition refers to the presence of barriers (legal, resources, governmental, etc.) to entry and exit that may inhibit the free flow of resources to their best use. Profitability refers to economic profit, not accounting profit. 2 2. Analysis of market structures Copyright © 2014 CFA Institute 3 LOS: Describe the characteristics of perfect competition, monopolistic competition, oligopoly, and pure monopoly. Pages 145–146 In perfect competition, there is a large number of firms and a homogeneous product; hence, no single producer influences market prices. In monopolistic competition, there is a large number of firms, yet there is product differentiation. An oligopoly consists of a small number of firms. Each firm in an oligopoly must consider the reactions of competitors in any pricing and output decision making. In a monopolistic market, there is a single firm that exercises control over pricing and output. 3 Determinants of market structures Copyright © 2014 CFA Institute 4 LOS: Describe the characteristics of perfect competition, monopolistic competition, oligopoly, and pure monopoly. Pages 146–148 The differentiating characteristics of market structures are number and relative size of firms, degree of product differentiation, power of the seller over pricing decisions, relative
