FOUR TYPES OF MARKET

STRUCTURES

-PERFECT COMPETITION
-MONOPOLY
-OLIGOPOLY
-MONOPOLISTIC COMPETITION
 THE MARKET STRUCTURES HAS ITS OWN SET
OF CHARACTERISTICSAND ASSUMPTIONS ,
WHICH IN TURN AFFECT THE DECISION
MAKING OF FIRMS AND THE PROFITS THEY
CAN MAKE.
 PERFECT COMPETITION

 Perfect competition describes a market

structures, where large number of small
firms compete against each other. In
this scenario , a single firm does not
have any significant market power.
 PERFERCT COMPETITION BUILDS ON A
NUMBER OF ASSUMPTIONS:
 All firms maximize profits
 There free and entry and exit to the market
 All firm sells completely identical
 There no consumer preferences.
 MONOPOLISTIC COMPETITION

 Also refers to a market structures, where a large

number of small firms compete against each other.
However unlike the perfect competition , the firms in
monopolistic competition sells similar but slightly
differentiated products. This give a certain degree of
market power which allows them to charge higher
prices within a certain range.
MONOPOLISTICS COMPETITION BUILDS ON
THE FOLLOWING ASSUMPTIONS:

 ALL FIRMS MAXIMIZE PROFIT

 THERE IS FREE EXIT AND ENTRY TO THE
MARKET
 FIRMS SELL DIFFERENTIATED PRODUCTS
 CONSUMER MAY PREFER ONE PRODUCT TO
ANOTHER.

 Example; Cereals
 OLIGOPOLY

 AN OLIGOPOLY DESCRIBES A MARKET

STRUCTURES WHICH IS DOMINATED BY ONLY
A SMALL NUMBER OF FIRMS. THIS RESULT IN
STATE LIMITED COMPETITION.
 THE FIRMS CAN COMPETE AGAINST EACH
OTHER OR COLLABORATE. BY DOING SO THEY
CAN USE THEIR COLLECTIVE MARKET TO
DRIVE UP PRICES AND EARN MORE PROFIT.
 OLIGOPOLY BUILDS ON THE FOLLOWING
ASSUMPTIONS:

 ALL FIRMS MAXIMIZE PROFIT

 CAN SET PRICE
 THERE ARE BARRIERS TO ENTRY AND EXITIN
THE MARKET
 PRODUCTS MAY BE HOMGENOUS OR
DIFFERENTIATED
 THERE IS ONLY A FEW FIRMS THAT
DOMINATES THE MARKET

 EXAMPLES; Microsoft, Sony and Nintendo

 MONOPOLY

 REFERS TO A MARKET STRUCTURE WHERE A

SINGLE FIRM CONTROLS THE ENTIRE MARKET.
THE FIRM HAS THE HIGH LEVEL OF MARKET
POWER, AS CONSUMERS DO NOT HAVE ANY
ALTERNATIVES
 MONOPOLY BUILDS ON THE FOLLOWING
ASSUMPTIONS:

 ALL FIRMS MAXIMIZE PROFIT

 CAN SET PRICE
 THERE ARE HIGH BARRIERS TO ENTRY AND
EXIT IN THE MARKET
 PRODUCTS MAY BE HOMGENOUS OR
DIFFERENTIATED
 THERE IS ONLY ONE FIRMS THAT DOMINATES
THE ENTIRE MARKET.