BASIC MARKET STRUCTUE

1. Perfect competition

• Large number of buyers and sellers Þ no one can influence market price
• Homogeneous products - no brand names
• Free entry/exit
• Perfect information - same technology used by all firm.

2. Monopolistic competition

• Price Control: In a monopoly, on account of a single market entity controlling

supply and demand, degree of price and supply control exerted by the
enterprise or the individual is greater.

• Increased Scope for Mergers: In a monopoly, due to the dictates of a single

entity, scope for vertical and/or horizontal mergers increase.

• Legal Sanctions: Competition laws restrict a monopoly with regards to the

extent of dominant position held and exhibit of illegal and abusive behavior.

• Predatory Pricing: This feature of monopoly benefits the consumers. These

are short term market gains when prices drop to meet scarce demand for the
product.

• Price Elasticity: With regards to the demand of the product or service offered
by the monopolizing company or individual, the price elasticity to absolute
value ratio is dictated by price increase and market demand.

• Lack of Innovation: On account of absolute market control, monopolies

display a tendency to lose efficiency over a period of time.

• Lack of Competition: When the market is designed to serve a monopoly, the

lack of business competition or the absence of viable goods and products
shrinks the scope for 'perfect competition'.

1|ECOTAXA
TOLENTINO, CRISTY S.
 • Monopoly Litigation: Lack of competition does not eliminate consumer
dissatisfaction. High market share results in consumers defying increased
prices and welcome new entrants to the seller's market.

3. Oligopoly

• many buyers but few sellers (more than one)

• firms are large relative to the market

• differentiated or homogeneous product

• Entry barriers.

4. Monopoly

• may be many buyers but only one seller

• single firm is the market

• homogeneous product

• entry barriers

Determinants of market structure

• Freedom of entry and exit

• Nature of the product – homogenous (identical), differentiated?

• Control over supply/output

2|ECOTAXA
TOLENTINO, CRISTY S.
 • Control over price

• Barriers to entry

3|ECOTAXA
TOLENTINO, CRISTY S.