Four Main Types of
Markets
Chapter 7
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Page 1
Characteristics define Type of
Market
Number of Sellers?
Many
firms
Type of Products?
One
firm
Monopoly
• Tap water
• Cable TV
Few
firms
Oligopoly
• Tennis balls
• Crude oil
Differentiated
products
Monopolistic
Competition
• Novels
• Movies
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Identical
products
Perfect
Competition
• Wheat
• Milk
Page 2
Characteristics of Markets:
• Market structures are defined
by their characteristics:
1. Number of sellers in the market
2. Type of product that sellers sell
• Are they identical or
somewhat different?
3. Sellers control over price
• Are they price makers or
price takers?
4. Ease of entry into the market
easy or difficult
• Are there barriers to entry?
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Page 3
Barriers to Entry Into Markets:
1. Need for large financial resources
2. High brand equity (the value of
having a well known brand)
• consumers will spend more to
buy Coca Cola than the store
brand
3. Legal barriers
• copyrights and patents
4. Economies of scale
• extremely low average total
costs
5. Exclusive ownership of a scarce
resource
• Alcoa owned nearly all sources
of
bauxite
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Page 4
Four Main Types of Markets
Perfectly
Competitive
# of
Sellers
Type of
Product
Control
over Price
Barriers to
Entry
Examples
Monopoly
Monopolistic Oligopoly
Competitive
A Perfectly Competitive Market
o In a Perfectly Competitive Market
o SELLERS: The market has many
buyers and many sellers
o PRODUCTS: All firms sell identical
goods
o PRICE: Price takers meaning they
can only sell goods at the equilibrium
price
o ENTRY: Firms have easy entry into
and exit out of the market
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A Perfectly Competitive Market
o Examples:
o Wheat farmers
o Makers of latex balloons
o Apple growers
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Page 7
A Monopolistic Market
o Characteristics of a Monopoly
o SELLERS: The market consists of one
seller
o PRODUCT: The single seller sells a
product that has no close substitutes
o PRICE: price makers they “search”
for the price that generates the most
profit
o ENTRY: The barriers to entry are
high, which means that entry into
the market is extremely difficult
Shopping in Bethel, Alaska
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Page 8
A Monopolistic Market
o Examples:
o “Last chance for gas in 100 miles"
o Movie theatre foods
o One ferry that goes to an island
without a bridge
o The only cable company in town
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Page 9
A Monopolistic Competitive
Market
o In a Monopolistic Competitive
Market:
o SELLERS: The market includes many
buyers and many sellers
o This is where the “competitive” comes in
o PRODUCT: Firms produce and sell
slightly differentiated products
o This is where the “monopolistic” comes in
o PRICE: price searchers
o ENTRY: Firms have easy entry into
and exit out of the market
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Page 10
A Monopolistic Competitive
Market
o Examples:
o Tennis shoes
o Computer games
o CDs
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Page 11
An Oligopolistic Market
o Characteristics of an Oligopoly:
o SELLERS: It has few sellers
o PRODUCTS: Firms produce and
sell either identical or slightly
differentiated products
o PRICE: Price searchers
o ENTRY: The barriers to entry are
significant—it is difficult to enter
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Page 12
An Oligopolistic Market
o Examples:
o Car manufacturers
o Breakfast cereals
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Page 13
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Page 14
Make a Fortuneteller
Perfectly
Competitive
Monopoly Monopolistic Oligopoly
Competitive
# of
sellers
Many
One
Type of
Product
Identical
No close
Differentiated
substitutes
Identical or
Differentiated
Ease of
entry into
market
Easy
Hard
Hard
Many
Easy
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Few
Page 15