Principles of Microeconomics

Market Structures: An Introduction

A market is a set of buyers and sellers, commonly referred to as agents, who through their interaction, both real and potential, determine the price of a good, or a set of goods. (www.policonomics.com)

The concept of a market structure is therefore understood as those

characteristics of a market that influence the behavior and results of the firms working in that market. (www.policonomics.com)

Number of firms

Barriers of Entry/Exit

Product differentiation

Characteristics

1. Perfect competition 2. Monopoly 3. Monopolistic competition 4. Oligopoly

Four Basic Types of Market Structures

Number of firms

Perfect competition

Many large firms and the firms are price takers

COMPETITIVENESS CONTINUUM

More competitive (fewer imperfections)

Perfect Competition

Monopoly

Monopolistic Competition Oligopoly

Less competitive (greater degree of imperfection)

Perfect Competition

Pure Monopoly

COMPETITIVENESS CONTINUUM

Monopolistic Competition Oligopoly

Number of firms

Barriers of Entry/Exit

Product differentiation

Perfect competition

Many large firms and the firms are price takers

Easy entry and exit

Identical Products

Number of firms

Barriers of Entry/Exit

Product differentiation

Monopoly

Just one firm and the firm is a price maker

Entry is not possible

No close substitutes

Number of firms

Barriers of Entry/Exit

Product differentiation

Monopolistic Competition

Large number of small firms

Relative ease of entry and exit

Similar, but not identical goods

Number of firms

Barriers of Entry/Exit

Product differentiation

Oligopoly

Small number of large firms

Significant barriers to entry

Identical or differentiated products

SUMMARY

Characteristics Behavior

Market Structure

Number of Firms

Entry/Exit Condition

Product Type Price Strategy

Promotion Strategy

Perfect Competition

Very Many Easy Standardized Price Taker None

Monopoly One None Only one product

Price Maker Little

Monopolistic Competition

Many Easy Differentiated Price Maker Large Amount

Oligopoly Few Impeded Standardized/Differentiated

Interdependent Little or large amount

Review Quiz

Identify the following as either Perfect Competition, Monopoly, Monopolistic Competition and Oligopoly

1. Oil Industry 2. Restaurants 3. Soft drinks 4. Telecommunications Company 5. Electricity 6. Smartphones 7. Local Water Utilities 8. Retail Stores 9. Landline 10.Toothpaste

Identification

Complete the table below:

Characteristics Behavior

Market Structure

Number of Firms

Entry/Exit Condition

Product Type Price Strategy

Promotion Strategy

Perfect Competition

1. 2. 3. 4. 5.

Monopoly 6. 7. 8. 9. 10

Monopolistic Competition

11. 12. 13. 14. 15.

Oligopoly 16. 17. 18. 19. 20.

RD VELASCO, MM

rudolph_tornado@yahoo.com.ph http://istudyguide.weebly.com

Photo Sources

• http://abhinavpmp.com/wp-content/uploads/market-competition-advantages.jpg

• http://www.lingocourse.com/wp-content/uploads/2014/01/16467872-abstract-word-cloud-for-market-structure-with-related-tags-and-terms.jpg

• http://media.economist.com/images/images-magazine/2011/01/15/ld/20110115_ldp004.jpg

• http://www.astbearings.com/assets/images/food-industry1.jpg

• http://www.grantwinstead.com/wp-content/uploads/2014/01/suppliers.jpg

• http://www.clker.com/cliparts/8/f/3/9/11949983831557358698exit.svg.hi.png

• http://www.grocery.com/wp-content/uploads/2013/09/Shopping_cart_with_food_clip_art_2.svg_.png

• Text and definitions are lifted from wires specially www.bized.com