Subject 1. Characteristics of Different Market Structures
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A financial analyst must understand the characteristics of market structures to better forecast a firm's future profit stream.
We focus on those characteristics that affect the nature of competition and pricing. They are:
- The number of firms (including the scale and extent of foreign competition).
- The extent of product differentiation (which affects cross-price elasticity of demand).
- The pricing power of seller(s). Can a firm influence the market price?
- Barriers to entry. Exit costs should also be considered.
- Non-price competition such as product differentiation.
The characteristics of each market structure will be discussed in subsequent subjects of this reading.
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