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
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)