4 MARKET

STRUCTURES IN
ECONOMICS
 PERFECT
COMPETITION
MARKET
STRUCTURE
■ In a perfectly competitive market, the forces of supply and demand determine the amount of goods and services
produced as well as market prices set by the companies in the market.

■ Perfect competition assumes the environment or climate cooperates with the buildings within it.

■ The perfectly competitive market structure is a theoretically ideal market; there is free entry and exit, so many companies
move into the market and easily exit when it’s not profitable. With so many competitors, the influence of one company or
buyer is relatively small and does not affect the market as a whole.

■ Buyers and sellers are referred to as price takers rather than price influencers.

■ The products within the market are seen as homogenous, there is little difference between them. Not only are the
products identical, information regarding product quality and price is perfectly and openly given to the public. The model
assumes each producer is operating at the lowest possible cost to achieve the greatest possible output.

■ The perfect competition model is difficult to find in operation. There are few agricultural and craft markets that may fit the
theory. This model is primarily a reference point from which economists compare the other market structures.
Perfect
competition
market
structure
examples
MONOPOLISTIC
COMPETITION
MARKET
STRUCTURE
■ Unlike perfect competition, monopolistic competition does not assume lowest
possible cost production.
■ That slight difference in definition leaves room for huge differences in how the
companies operate in the market.
■ Companies in a monopolistic competition structure sell very similar products
with small differences they use as the basis of their marketing and advertising.
■ This is completely different from the perfectly competitive market structure
which excludes advertising. Consider bath soap — they are all pretty much the
same as far as what makes it soap and its use, but small differences like
fragrance, shape, added oils or color are used in advertising and in setting price.
■ In monopolistic competition producers are price maximizers.
■ When the profits are attractive, producers freely enter the market. The slight
differences between the products also creates imperfect information regarding
quality and price.
■ Monopolistic competition markets are a hybrid of two extremes, the perfectly
competitive market and monopoly.
Examples of
monopolisti
c
competition
markets
 MONOPOLY
MARKET
STRUCTURE
■ Monopolies and perfectly competitive markets sit at either end of
market structure extremes. However, both minimize cost
and maximize profit. Where there are many competitors in a perfect
competition, in monopolistic markets there’s just one supplier.
■ High barriers to entry into this market leave a “mono-” or lone
company standing so there is no price competition. The supplier is the
price-maker, setting a price that maximizes profits.
Examples of
 Monopoly
Market Structure
OLIGOPOLY
MARKET
STRUCTURE
• Not all companies aim to sit as the sole building in a city. Oligopolies have
companies that collude, or work together, to limit competition and dominate
a market or industry.  The companies in these market structures can be large
or small, however, the most powerful firms often have patents, finance,
physical resources and control over raw materials that create barriers to
entry for new firms.

• Since this market structure discourages true competition, the producers are
able to set prices, but the market is price sensitive. If the prices are too high,
buyers will migrate to the market’s product substitutes.
Oligopoly
market
structure
examples