Different Market Types in
Hong Kong
Is the Stock Exchange under
Perfect Competition ?
Perfect Competition:
1. Large no. of
sellers
2. Homogeneous
product
Share of HSBC:
1. Many sellers => Daily
transactions in both
quantity and value are
enormous.
2.Each unit share of
HSBC is identical
Perfect Competition:
3. Free entry &
exit
4. Perfect
information
Share of HSBC:
3. Investors are
free to sell or
buy any shares
as long as they
can afford them.
4. Some business information
is restricted to the top
management of the bank
=> Imperfect information
So the stock exchange is often taken as a
close example, but not a perfect
competition.
Is taxi service an example of
Perfect Competition? Explain.
Perfect Competition:
1. Large no. of
sellers
2. Homogeneous
product
Taxi service:
1. Many taxis provide
services.
2. Taxi services are
different, such as
different taxi
drivers’ manner.
So taxi service is not
an example of
Perfect Competition:
perfect information.
Taxi service:
3. Free entry &
exit
4. Perfect
information
3. Entry to Taxi
services market is
restricted by taxi
licence and taxi
driving licence
4. Drivers do not know
where & when will
have customers =>
imperfect information.
Perfect Market / Competition
• an ideal market structure
=> no real world example
=> use it to compare with real world
markets
• Consumers will enjoy the lowest
possible price
Comparison of different types of market structure
Features
Perfect
competition
Size/ # of Firms
Small & many
Different types of market structures
Monopolistic
Oligopoly
competition
Relatively many
& small
Monopoly
Several
dominant sellers
One
Freedom of
market entry /
exit
Free entry
and exit
Free entry
and exit
Difficult
entry
Very difficult
entry
Nature of goods
Homogeneous
Heterogeneous
Homogeneous
Heterogeneous
Unique
Availability of
information
Perfect
Imperfect
Imperfect
Imperfect
Influence on
market price
Price taker
Price
searcher
Yes
Price
searcher
Yes
Price
searcher
Non-price
competition
No
Highest
Degree of
competition
Yes
Lowest
Are they monopolists?
Study the following figures carefully and
answer the question.
The electricity supply market is not
an example of monopoly, as there
are two electricity companies in
Hong Kong.
Cheryl
The market of public bus services is
not an example of monopoly, as there
are many companies providing bus
services in Hong Kong.
Lincoln
Are they monopolists?
Use the four criteria listed in this unit to explain
whether the views of Lincoln and Cheryl are
correct.
• Both are incorrect.
• Both electricity supply (natural
monopoly) and public bus services
(franchised monopoly): Monopoly
• Two electricity companies in Hong
Kong but operating under monopoly:
 The Hongkong Electric Company
Limited: The sole electricity supplier for
Hong Kong Island and Lamma Island
Are they monopolists?
 CLP Hong Kong Limited: The sole
electricity supplier for Kowloon, the New
Territories and other outlying islands
→ Examples of ‘regional monopoly’
• Five public bus companies in Hong Kong:
 Each company operates different bus
routes under government franchise.
 Of each bus route, the respective
company is the only operator.
Are they monopolists?
• Criteria:
 Only one seller of electricity or bus
services in a particular district or route
 Huge amounts of capital
 Operation of a bus company requires a
franchise granted by the government:
→ Difficult to enter the market
Are they monopolists?
 Both electricity supply and bus
services provided by different
companies are heterogeneous
from the buyers’ point of view.
 Imperfect information concerning the
markets of electricity supply and bus
services
Give some examples of
franchised monopolies in
Hong Kong.
• Hong Kong Air Cargo Terminals Limited
(Hactl) and the Asia Airfreight Terminal
Limited (AAT): Monopolises the operation
of Hong Kong’s air cargo services
• Tate’s Cairn Tunnel Company Limited:
Monopolises the operation of the
Tate’s Cairn Tunnel
‘7-Eleven’ took over ‘Daily Shop’
in 2004. Then ‘7-Eleven’ and OK
Convenient Store become the only
two competing convenience stores
in Hong Kong.
(a) Under which market structure does convenience
store industry in Hong Kong operate?
Oligopoly
(b) List the features of this type of
market structure.
• The market is controlled by several dominant
sellers
• Goods sold are heterogeneous
• Difficult market entry
• Imperfect market information
Is there price rigidity in
the gasoline retail market?
• Yes
• Sellers tend not to change the current
market price and thus the price is
often maintained at a certain level.
Why is newspaper publishing in
Hong Kong considered to be
under oligopolistic competition?
Explain with reference to the
four criteria listed in this unit.
• The market is controlled by several
newspapers: Apple Daily, Oriental
Daily, the Sun Daily and Ming Pao.
• Require huge amounts of capital to enter
the newspaper publishing industry;
newcomers have to face competition from
the existing newspapers
• Newspapers published by different
publishers are heterogeneous goods with
different styles and characteristics from the
buyers’ point of view
• Not all information is readily available
concerning newspapers, such as information
sources of articles and publishing strategies
What type of market structure is it?
Study the following figures carefully
and answer the questions.
 Red public light
bus service
 Grocery retail
 Westernstyle cakes
and pastries
 Computers retail
What type of market structure is it?
1 Identify the type of market structure
under which each of the above goods or
services operates.
2 List ONE feature for each type of market
structure mentioned in question 1.
 Grocery retail
What type of market structure is it?
1. Grocery retail: Monopolistic competition
2 Features:
 A large number of sellers and buyers
 Free market entry
 Heterogeneous goods and services (e.g. the attitudes
of shopkeepers are different)
 Imperfect market information (e.g. buyers may not
have full information about the quality and price of
the goods sold by each seller)
 Sellers are price searchers (that means
each grocery may set its own price).
 Presence of non-price competition (e.g. some
sellers offer free tissue packs)
 Red public light
bus service
What type of market structure is it?
1 Red public light bus service: Monopolistic competition
2 Features:
 A large number of sellers and buyers
 Enter the market easily after obtaining a license
from the government
 Heterogeneous goods and services (e.g. the
attitudes of drivers are different)
 Imperfect market information (e.g. buyers may
not have full information about the route and
price of each light bus)
 Sellers are price searchers (that means each
driver may set his or her own price).
 Presence of non-price competition (e.g. improve
the attitudes of drivers)
 Computers retail
What type of market structure is it?
1 Computers retail: Monopolistic competition
2 Features:
 A large number of sellers and buyers
 Free market entry
 Heterogeneous goods and services (e.g. sellers
offering different computer products and
maintenance services)
 Imperfect market information (e.g. buyers may not
have full information about the quality and price of
computer products sold by each seller)
 Sellers are price searchers (that means each
shop may set its own price).
 Presence of non-price competition (e.g. better
after-sales services)
 Western-style cakes and pastries
What type of market structure is it?
1 Western-style cakes and pastries: Oligopoly
2 Features:
 Several dominant sellers (Maxim’s Cake Shop,
Saint Honore Cake Shop, Arome Bakery)
 Difficult entry: Compete with the existing sellers
and take a long time to build up buyers’
confidence in their goods or services
 Heterogeneous goods and services (e.g. the
differences in the cakes’ taste and the attitudes
of shopkeepers)
What type of market structure is it?
 Imperfect market information (e.g. buyers
may not have full information about the
quality and price of cakes sold by each seller)
 Sellers are price searchers (that means
each shop may set its own price).
 Presence of non-price competition
(e.g. introducing new cakes and
improving sales services)
The End