Market
Structure
Forms of Competition
Market Structure
 What
happens in a competitive
environment?
 New
idea? – firm makes short term
abnormal profit
 Other firms enter the industry to take
advantage of abnormal profit
 Supply increases – price falls
 Long run – normal profit made
 Choice for consumer
 Price sufficient for normal profit to be
made but no more!
Market Structures
 Type
of market structure influences how a
firm behaves:

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Pricing
Supply
Barriers to Entry
Efficiency
Competition
Market Structure
 Determinants

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
of market structure
Number of firms in industry
Product differentiation
Advertising
Influence over price
Barriers to entry
Market Structure
Perfect
 Easy
Competition:
entry and exit to industry
 Homogenous product – identical so no
consumer preference- no differentiation
 Large # of buyers and sellers – no
control over price
 No advertising
 Many firms
 Examples: stocks, table salt, farming
Market Structure

MONOPOLITIC COMPETITION

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
Many firms
Limited control of price
Some product differentiation
Lots of advertising
Easy entry and exit into market

Example: women’s clothing, sneakers,
restaurants

http://youtu.be/FQiuVW1GWpE
Market Structure
 Oligopoly
the few
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– Competition amongst
Industry dominated by small number of large
firms
Many firms may make up the industry
High barriers to entry
Products could be highly differentiated –
branding or homogenous
Non–price competition
High degree of interdependence between firms
Market Structure
 Examples
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
of oligopolistic structures:
Supermarkets
Banking industry
Chemicals
Oil
Medicinal drugs
Broadcasting
http://youtu.be/tm-6MjCavlM
Market Structure
 Monopoly:
 Pure
monopoly – industry is the firm!
 Actual monopoly – where firm has >25%
market share
 Natural Monopoly – high fixed costs – gas,
electricity, water, telecommunications, rail
Market Structure
Monopoly:


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High barriers to entry
Firm controls price OR output/supply
Possibility of price discrimination
Consumer choice limited
Market Structure
 Advantages
 May
of a monopoly:
be appropriate if natural
monopoly
 Encourages innovation
 Disadvantages:




Exploitation of consumer – higher prices
Potential for supply to be limited - less
choice
Potential for inefficiency –
http://youtu.be/A716RetMK3c
Market Structure Mind Map

Create an illustrative and informative mind
map of all Market Structures



All 4 types of market structures
Each market structure must have illustration to
symbolize its general character
Each market structure must show the major
characteristics
# of firms
 Product differentiation
 Advertising
 Control of Price
 Entry/Exit barriers
