Unit #4: Market Structures
Market Characteristics
Market Structures
• Market Structure is the way an industry is organized:– Auto Industry versus the restaurant industry
Market Characteristics• Market characteristics of an industry determine
the pricing power of a business
• 4 market characteristics: – # of Firms– Type of Product– Ease of entering or exiting industry– Amount of Information
Determine pricing control
Number of Firms
• The number of competitors greatly influences how a firm behaves
Business # Firms
1) Restaurants Many
2) Auto Companies Several
3) Google Almost none
Type of Product Sold
• Is your product unique? (are there substitutes?)
• Wheat Farmers
• Porsche
Ease of Entry/Exit
• Very critical feature of a market structure
• Adam Smith assumed ease of entry for capitalism to be efficient…
Amount of Information
• Do buyers & sellers have access to market information?
• The internet has dramatically increased the flow of information
Degree of Price Control
• Price control determined by first 4 market characteristics
• Price Taker: firm has little/no control over price
• Price Setter: firm has some control over price
PerfectCompetition
MonopolisticCompetition Oligopoly Monopoly
“I hate Monopolies”
Perfect Competition is Adam Smith’s dream!
Most competitive Least competitive
4 Market Structures
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