Market Structures
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SSEMI4c- Identify the basic characteristics of the
four market structures
Competition

The rivalry among sellers to achieve
goals and make the highest profit
Why is competition beneficial for
consumers?
Lower prices
Better products
More innovation

Market structure

Nature and degree of competition
among firms doing business in the
same industry
Perfect
Competition
Oligopoly
Monopolistic
Competition
Monopoly
Perfect Competition

A market structure in which a large
number of firms all produce the
same product.

Large number of buyers and sellers
(thousands)
Identical products –




no need for advertising – tomatoes
are tomatoes
No control over price. Firms are
price takers.
Few barriers to entry, businesses
are free to enter into, conduct, or
get out of business
Identical
Monopolistic Competition

A market structure in which
many companies sell products
that are similar but not identical.

Many Firms, but less than perfect
competition (100’s)

Products are similar but not
identical (fastfood).

Characterized by product
differentiation (real or perceived)

Some control over price because
products are not exactly the same.

No major barriers to entry. Firms
can enter and leave easily.
Which do you prefer?
Non-Price Competition

The use of advertising, giveaways, or
promotional campaigns to convince
buyers that the product is somehow
better than another brand
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Oligopoly

A market structure in which only a few
sellers offer similar or identical products.

Few very large sellers dominate the
industry (10’s of firms)

ex. AT&T, Verizon, Sprint, etc.

Products can be similar or identical

Some control over price


When one changes price, the others have to
decide whether to follow
Significant barrier to entry



High start-up cost
Costly R & D (research and development)
Control over key resources by a competitor
Oligopoly – Pricing Models

Cartels - agreement between
competing firms to control prices or
exclude entry of a new competitor in
a market


Collusion – formal agreement to set
specific prices or to otherwise behave
in cooperative manner (Ex: OPEC)
Price Leadership – one firm
dominates the market and the others
follow their lead (increasing or
lowering price)
Monopoly

A market with only one
seller for a particular
product

Usually one good or
service

Unless regulated by the
government, firm has full
control over price

Complete barriers to entry
(no new competition)
Types of Monopolies

Natural Monopoly – market
situation where the costs of
production are minimized by
having a single firm produce the
product


ex. Public utility companies –
waste to run multiple electric
lines, oil pipeline in Alaska
Utilizes economies of scale –
average cost of production falls as
the firm gets larger
Types of Monopoly

Geographic Monopoly – based on absence of
other sellers in a certain geographic area (gas
station, drugstore in small town)
Types of Monopoly
Technological Monopoly – based on
ownership or control of a manufacturing
method, process, or other scientific
advance (certain pharmaceutical drugs)
 Patent – exclusive right to manufacture,
use, sell invention – usually good for 20
years
 Copyright – authors, art – good for their
lifetime plus 50 years

Types of Monopolies

Government Monopoly monopoly owned and
operated by the
government (military,
water and sewage)
On your own paper…
Describe the effect that
YOU think the patent
system of the US had on
the number of inventions
produced by individuals.