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    Market Structures

    Uploaded by

    Feane Lamasan
    This document discusses different market structures including monopolistic competition, oligopoly, and monopoly. It provides characteristics of each structure such as the number of firms, product differentiation, barriers to entry, pricing behavior, and examples. Perfect competition is described as having free entry and exit, homogeneous products, price-taking firms, and normal profits in the long run. Monopolistic competition involves differentiated products, free entry and exit, and firms having some control over price. Oligopoly is dominated by a small number of large firms, with high barriers to entry, potential for collusion, and interdependence between firms. Monopoly grants a single firm control over price and output with potential for abnormal profits and inefficiency.

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    Market Structures

    Uploaded by

    Feane Lamasan
    30 views2 pages
    This document discusses different market structures including monopolistic competition, oligopoly, and monopoly. It provides characteristics of each structure such as the number of firms, product differentiation, barriers to entry, pricing behavior, and examples. Perfect competition is described as having free entry and exit, homogeneous products, price-taking firms, and normal profits in the long run. Monopolistic competition involves differentiated products, free entry and exit, and firms having some control over price. Oligopoly is dominated by a small number of large firms, with high barriers to entry, potential for collusion, and interdependence between firms. Monopoly grants a single firm control over price and output with potential for abnormal profits and inefficiency.

    Original Title

    MARKET STRUCTURES

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    This document discusses different market structures including monopolistic competition, oligopoly, and monopoly. It provides characteristics of each structure such as the number of firms, product differentiation, barriers to entry, pricing behavior, and examples. Perfect competition is described as having free entry and exit, homogeneous products, price-taking firms, and normal profits in the long run. Monopolistic competition involves differentiated products, free entry and exit, and firms having some control over price. Oligopoly is dominated by a small number of large firms, with high barriers to entry, potential for collusion, and interdependence between firms. Monopoly grants a single firm control over price and output with potential for abnormal profits and inefficiency.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    30 views2 pages

    Market Structures

    Uploaded by

    Feane Lamasan
    This document discusses different market structures including monopolistic competition, oligopoly, and monopoly. It provides characteristics of each structure such as the number of firms, product differentiation, barriers to entry, pricing behavior, and examples. Perfect competition is described as having free entry and exit, homogeneous products, price-taking firms, and normal profits in the long run. Monopolistic competition involves differentiated products, free entry and exit, and firms having some control over price. Oligopoly is dominated by a small number of large firms, with high barriers to entry, potential for collusion, and interdependence between firms. Monopoly grants a single firm control over price and output with potential for abnormal profits and inefficiency.

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    © All Rights Reserved
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    of 2

    MARKET STRUCTURES: - Products differentiated

    - Relatively free entry and exit


     Type of market structure influences how a - Each firm may have a tiny ‘monopoly’
    firm behaves: because of the differentiation of their
    - Pricing
    product
    - Supply - Firm has some control over price
    - Barriers to Entry - Example: restaurants, solicitors, etc.
    - Efficiency Oligopoly – Competition amongst the few
    - Competition - Industry dominated by small number of
     Degree of competition in the industry large firms
     High levels of competition – Perfect - Many firms may make up the industry
    competition - High barriers to entry
     Limited competition – Monopoly - Products could be highly differentiated
     Degrees of competition in between – branding or homogenous
     Determinants of market structure
    - Non–price competition
    - Freedom of entry and exit - Price stability within the market -
    - Nature of the product – homogenous kinked demand curve?
    - Control over supply/output\control - Potential for collusion?
    over price - Abnormal profits
    - Barriers to entry - High degree of interdependence
    Perfect Competition:
    between firms
     Free entry and exit to industry - Example: supermarkets, oils, bank, etc.
     Homogenous product – identical (no - Measuring Oligopoly: Concentration
    consumer preference) ratio – proportion of market share
     Large number of buyers and sellers – no accounted for by top X number of firms.
    individual seller can influence price – Example: 5 firm concentration
     Sellers are price takers – have to accept ratio of 80% - means top 5 five
    the market price firms account for 80% of
     Perfect information available to buyers market share.
    and sellers Duopoly
    Example: Financial markets – stocks - Industry dominated by two large
    exchange, currency markets, bond markets, firms
    agriculture - Possibility of price leader emerging
    Advantages of Perfect Competition: – rival will follow price leaders
    - High degree of competition helps allocate pricing decisions
    resources to most efficient use - High barriers to entry
    - Price = marginal costs - Abnormal profits likely
    - Normal profit made in the long run Monopoly
    - Firms operate at maximum efficiency  Pure monopoly – industry is the
    - Consumers benefit firm!
    What happens in a competitive environment?  Actual monopoly – where firm has >
     Firm makes short term abnormal profit 25% market share
     Other firms enter the industry to take  Natural Monopoly – high fixed costs
    advantage of abnormal profit – gas, electricity, water,
     Supply increases – price falls telecommunications, rail
     Long run – normal profit made - High barriers to entry
     Choice for consumer - Firm controls price OR
     Price sufficient for normal profit to be output/supply
    made but no more - Abnormal profits in long run
    Imperfect or Monopolistic Competition - Possibility of price discrimination
    - Many buyer and sellers - Consumer choice limited
    - Prices in excess of MC
    Advantages and disadvantages of monopoly
    Advantages:
    – May be appropriate if natural monopoly
    – Encourages R&D
    – Encourages innovation
    – Development of some products not
    likely without some guarantee of
    monopoly in production
    – Economies of scale can be gained –
    consumer may benefit

    Disadvantages:

    – Exploitation of consumer – higher


    prices

    – Potential for supply to be limited - less


    choice

    – Potential for inefficiency – X-


    inefficiency – complacency over
    controls on costs

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