MARKET STRUCTURES AND COMPETITION

Market Structure
o The nature and degree of competition among firms
operating in the same industry.
o Markets are classified according to certain structural
characteristics
o Pure Competition, Monopolistic Competition,
Oligopoly and Monopoly
PURE COMPETITION

 A large number of buyers and sellers exist.

- No single buyer or seller can affect price.
 Buyers and sellers deal in identical product.
 Each buyer and seller acts independently – competition keeps
price low
 Buyers and sellers are reasonably well informed about items
for sale
 Buyers and sellers are free to enter into, conduct or get out
of business
MONOPOLISTIC COMPETITION
 Has all the characteristics of pure competition except the fact that the
products sold are not identical.
Non-price competition
o Advertisements try to convince consumers that the product is somehow
better than the other brand.
o Heavy advertisement and promotion from those types of companies.
Profit maximization
 There is still price competition so you can not raise your price too high
 Producers will maximize profits by using the market price for their
product as a guide to decide how many will be produced and sold.
OLIGOPOLY
 Market structure in which very few large sellers of a product
dominate.
 Product can be identified.
 Due to few number of firms, one firm can cause a change in
output, sales and price in the industry as a whole.
 Because there are so few firms, whenever one firm does
something, the other firms usually follows.
MONOPOLISTIC

 Exactly opposite of pure competition.

 Market structure in which there is only one seller of a
particular products with no close substitute.
 No pure monopolistic exist but some firms come close.
TYPES OF MONOPOLIES are “price makers” rather the “price takers”

o Natural Monopolies
-A situation in which costs are minimized by having a single
firm produce the product.
-The nature of the industry dictates that society would better
served by only one supplier
o Geographic Monopolies
- A monopoly exist because no other business in the
immediate area offers any competition.
o Technological Monopolies
- A firm or individual has discovered a new manufacturing
technique or has invented or create something entirely new.

o Government Monopolies
- A business own’s and operates by the government