MARKET STRUCTURES MICROECONOMICS WHAT IS A MARKET STRUCTURE

MARKET STRUCTURES MICROECONOMICS

WHAT IS A MARKET STRUCTURE? • Market Structures are economic models describing the nature of competition among firms in an industry. – – Perfect (pure) Competition Monopolistic Competition Oligopoly Monopoly • Economists consider the following factors when analyzing the markets in which firms compete. – – Number of sellers in the market Conditions restricting new firms from entering the market (barriers to entry) Amount of control individual firms have over the price of their product The likelihood of individual firms allocating funds to the marketing of their product http: //www. econedlink. org/tool/208/Competition-Market-Structure-Video. Quiz

MARKET STRUCTURES Most Competitive Least Competitive Monopoly Oligopoly Monopolistic Competition Perfect Competition Restaurants Hotels Hair Salons Agriculture Examples: Utilities. Water & Electricity Automobiles Telecommunications Breakfast Cereals Airlines

PERFECT (PURE) COMPETITION • Market characterized by a large number (millions) of firms • Businesses sell IDENTICAL products – Oil – Agricultural Products • No control over price – has to rely on the market price • Easy entry into the industry • Competition based on price

MONOPOLISTIC COMPETITION • Market structure characterized by a large number of buyers and sellers. – Restaurants – Retail clothing stores • Products are similar to one another – differentiated • Some control over price • Relatively easy to enter the industry • Lots of non-price competition – Advertising – Promotions

OLIGOPOLY • Market structure characterized by only a few sellers who dominate the market – Breakfast cereals – Natural gas • Differentiated products – depends on the industry • Limited control over price • Hard to enter the industry – significant barriers • Lots of non-price competition – Advertising – Price Wars – Ex: airlines cutting ticket prices

MONOPOLY • Market structure characterized by ONE seller of a product dominating the market – Electrical power companies – Cable companies • Differentiated products – unique only to that firm • Total control over price • Very difficult/almost impossible to enter the market • Some non-price competition

Market Characteristics Perfect Competition Monopolistic Competition Oligopoly Monopoly Number of Firms Similar or Differentiated Products Sold by the Business Millions of firms Many firms Few firms One firm Identical Products Differentiated Depends on industry Unique product Some Control Limited All/significant control Relatively easy to start Significant barriers to entry Almost impossible Yes (advertising) Some Level of Control Over Price No Control Easy to Enter Industry or are there Barriers to Entry Very easy to start Existence of Non. Price Competition? None