Market Structures

Market Structure Criteria

a) How many producers?

b) Are the products similar?

c) Is it easy to enter the market?

d) Do producers control prices?

Perfect Competition

Structure How many producers?

Are the products similar?

Is it easy to enter the market?

Do producers control prices?

Perfect Competition

Many Yes Yes – so producers always face competition from new firms

No- “price takers” (they must accept the price the market gives them)

Milk Market

Monopolistic Competition

Structure How many producers?

Are the products similar?

Is it easy to enter the market?

Do producers control prices?

Monopolistic Competition

Many No –due to product differentiation or branding

Yes – producers always face competition from new firms

Some control because producers control their brand

Shoe Market

Oligopoly

Structure How many producers?

Are the products similar?

Is it easy to enter the market?

Do producers control prices?

Oligopoly Small number

Very similar– small variations

No – often due to high start up costs

Some control overprices because only a few producers

Airplane Market

Monopoly

Structure How many producers?

Are the products similar?

Is it easy to enter the market?

Do producers control prices?

Monopoly One Unique product

No- barriers limit other firms from entering the market

YES – “price setters” (they get to determine price)

Electricity Market

Why should you care about the level of competition in

a market?

• Because when markets are not fully competitive, the CONSUMER suffers.