Types of market structure 1. Perfect competition

Different industries have different market structures.
Different market characteristics determine the
relations among sellers, and relations between
sellers and buyers.
The most important aspects of market structure
1. the degree of concentration of sellers in the
2. the degree of product differentiation
3. the ease or difficulty with which new sellers can
enter the industry.
perfect competition – many producers of a single,
unique good; (e.g. potatoes, onion)
monopoly - single producer of an unique good
;(e.g. Poczta Polska, energy, water suppliers)
monopolistic competition – many producers of
slightly differentiated; goods (e.g. clothes, sweets,
computers etc.)
oligopoly – few producers, with a single or only
slightly differentiated; good (e.g. cigarettes, cell
phones, satelite TV)
It depends on how difficult it is to enter the market.
That depends:
 on control of the necessary resources or inputs,
government regulations,
 economies of scale, technological superiority.
 It also depends on how easy it is to differentiate
◦ Soft drinks, economic textbooks, breakfast cereals can
readily be made into different varieties in the eyes and
tastes of consumers.
◦ Red roses are less easy to differentiate
many buyers and sellers,
identical (also known as homogeneous)
no barriers to either entry or exit,
buyers and sellers have perfect information
about market,
In perfect competition, all producers are price
takers, as they have to accept what the
market says is the appropriate price and they
cannot do anything to shift that price.
no individual firm can affect the market
demand curve facing each firm is perfectly
produce where MR = MC
Economic profit
If price =
minimum point
on ATC curve,
economic profit
= 0.
Owners receive
normal profit.
No incentive for
firms to either
enter or leave the
A perfectly
firm will
produce at
the level of
output at
which P =
MC, as long
as P > AVC.
Firms enter if economic profits > 0
◦ market supply increases
◦ price declines
◦ profit declines until economic profit equals zero
(and entry stops)
Firms exit if economic losses occur
◦ market supply decreases
◦ price rises
◦ losses decline until economic profit equals zero
Perfectly competitive market is the only
market structure, at which:
◦ P = minimum ATC