RMIT Classification: Trusted

Market Structures
• This is the nature and degree of competition among firms operating in
a given industry

• It is useful to understand how people and companies compete

• In general, as competition increases, what happens to price? It

decreases.
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Market Structures

Num Shape of Average

Market Product Barriers to Control Over Price of Ability to Control the Government Example of
ber of Other Features Demand Size of
Structure Characteristic Entry Their Products Price of Inputs Intervention Industries
Firms Curve Firms

High competition, no Banh Mi Stalls, Stock

Perfect Many Perfectly Very
Homogenous None None None market power, price Minimal or none Markets, Fruit
Competition small elastic small
takers Markets

Downward Moderate, often in

Slight – local Product
Monopolistic Many sloping, Small to the form of
Differentiated Slight competition limits how Slight differentiation, some Clothing stores, Hair
Competition small relatively medium regulations and
much they can charge control over pricing salons, Coffee shops,
elastic standards
Sports apparell, Fast-
Food (in the USA)

Downward
Oligopolists may engage May be high e.g. Limited competition, sloping, less
Can be significant,
A few in trade wars or aim for supermarket chains can significant market including anti-trust Automobiles,
Oligopoly Differentiated High elastic than Large
large monopolistic control set the price for some laws and regulation Smartphone
power, price makers monopolistic
through cartels, agricultural produce. of mergers producers, Internet
competition
takeovers, mergers, or companies, Fast-
aggressive marketing Food(in Vietnam)

May be very high

Downward Varies, can be high
depending on whether No competition, Very
sloping, in natural Utilities,
Monopoly One Single Very high Considerable other producers have complete market large or
relatively monopolies or Pharmaceuticals
other outlets for their control, price setter dominant
inelastic regulated sectors
produce
 RMIT Classification: Trusted

1. Perfect Competition
• This is where many producers sell the same undifferentiated products
to the market. The products are said to be homogenous in that the
product of one manufacturer cannot be distinguished from that of
another producer. Example- wheat

• Prices would be lowest in this market structure

RMIT Classification: Trusted
 RMIT Classification: Trusted

2. Monopolistic Competition
• This is a market structure in which many companies sell products that
are similar but not identical

• Example would be Fast food Industry

in the USA but not for Vietnam, as there
are less companies.
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MONOPOLISTIC COMPETITION
• Characterised by quite a large no. of firms (though not as many as perfect
competition: often coexists with oligopoly in same industry (e.g. financial
services

• Freedom of entry and of exit

• Each firm produces a product or service that is in some way different to

that
of its competitors
- can be due to location (petrol station) , unique product (small bakery),
quality of service (plumber) etc.
RMIT Classification: Trusted
 RMIT Classification: Trusted

3. Oligopoly
• An oligopoly is a small group of businesses, two or more, that control
the market for a certain product or service. This gives these
businesses huge influence over price and other aspects of the market

• Examples would be Apple and Samsung with Smart Phones

RMIT Classification: Trusted
 RMIT Classification: Trusted

4. Monopoly
• A monopoly is when barriers to entry exist because one firm can
operate at a lower marginal cost than its competitors. Once
competitors have been stamped out, the monopoly firm can raise
prices, restrict output and hurt consumers pockets

• Example would be railroad, electricity

companies, water companies
RMIT Classification: Trusted