Market Structures
Lesson 10
Module 57
Market Structures (57)
• Types of Market Structures: Four
Primary Models
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Perfect Competition
Monopoly
Oligopoly
Monopolistic Competition
• Market Structures are based on
– Number of Firms in the market (One,
few, many)
– Goods offered are identical or
differentiated
Competition
• Conditions of Perfect Competition
– Perfect competition is the goal of economists for a stable free
market.
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Many sellers
Selling identical products
Able to enter and exit the market freely
None of them are large enough to influence prices.
There need to also be many well-informed buyers, all looking for the
best prices. This keeps the system in equilibrium.
• Price Takers and Price Makers
• Market Share
• Commodity (Standardized Product)
Barriers to Entry
• Competitiveness in markets largely has to do with the
ease with which new firms can enter the market.
• Markets that require a lot of technical knowledge
(computer hardware), large amounts of infrastructure (oil,
transportation, factories), or difficult to get resources have
large start up costs.
• In these cases, there remains a relatively few businesses
that are in the market, making perfect competition
improbable.
Monopolies
• Monopolies exist when there is a single supplier for a good, and the
barriers to entry prevent other suppliers from entering the market.
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Control of Scarce Resources
Economy of Scale
Technological Superiority
Government-created barriers
• Patent or Copyright
• While monopolies are generally considered to be bad because they can
limit the quantity supplied and can charge whatever they want, there are
other kinds of monopolies that economists love.
Oligopoly
• An oligopoly is a situation where there are a few firms
that produce very similar products, but are different in
some variation. Cola companies would fall into this
category.
• The conditions for an oligopoly are:
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Few firms
Barriers to entry are high
Some control over prices
Products are slightly different
• Market Concentration
– How concentrated is the market?
• Four and Eight Firm ratios
Monopolistic Competition
• Monopolistic competition are where there are
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Many firms
Barriers to entry are low
Some control over prices
Some variation of goods.
• There are many examples of these kinds of businesses, like
retail stores, or gas stations. They tend to have some kind of
brand image, and differentiate themselves by service,
product quality, or features.
– Chinese Food versus Mexican Food
• Not Perfect Competition (Products are different)
• Not A Monopoly (faces competition)
• Not An Oligopoly (many firms, free entry)