Market Structure

Market structure refers to the conditions which exists in the market including
the number of firms.
According to the level of competition markets can be divided into two
structures
1. Highly competitive markets – Perfect competition
2. Imperfect competition – Monopoly
Perfectly Competitive
Features of Perfectly Competitive markets
i. Large number of buyers and sellers
ii. No barriers to entry and exit
iii. Supernormal profits can be earned in the short-run only
iv. In the long-run only normal profit can be earned
v. Sellers and buyers are price takers
vi. Prices are determined by the interaction of demand & supply
Advantaged of Perfect Competition
i. These markets may promote efficiency
ii. Prices are usually low
iii. Quality of the products can be high
Disadvantages of Perfect Competition
i. Prices are sometimes high because of small scale of operations
ii. There may be lack of choice for goods
iii. Quality of the products can be compromised

Monopoly
Monopoly is a market with a single supplier. Some governments
define monopoly as a firm that has at least 25% of the market share,
and a dominant monopoly with at least 40% of the market share.
Characteristics of Monopoly
i. Dominance by one firm
ii. High barriers to entry and exit
iii. Monopoly is a price maker
iv. Supernormal profits are made both in short and long-run
v. Monopoly can arise because of mergers/takeovers or the law
protects the monopolistic power of the firm.
vi. Monopolist can determine price or the quantity it sells but
not both
Advantages of Monopoly
i. As monopolists operate on a very large scale, they benefiting
from huge economies of scale, that is, lower average costs of
production.
ii. Monopolists have the financial resources to invest in
innovation.
iii. Some monopolies can eliminate wasteful competition.

Disadvantages of monopoly
i. Private-sector monopolies can be inefficient in terms of
resource allocation.
ii. High barriers to entry prevent new firms from entering the
market. This limits the degree of competition.
iii. As there are no substitutes for the products supplied by
monopolists, demand is price inelastic.
iv. Imperfect knowledge about prices and products means that
consumers may not necessarily make rational choices.