DEFINING COMPETITION

AND MARKET STRUCTURES

MODULE 25
LEARNING OBJECTIVES
1. Define competition and market structure
2. Identify the market features of a market
structure
3. Distinguish the four market models in a
market
Structures.
 MARKET STRUCTURE
NATURE AND DEGREE of competition in the market for goods
and services.
DIFFERENT TYPES OF MARKET STRUCTURES
PERFECT/PURE COMPETITION
MONOPOLISTIC COMPETITION
OLIGOPOLY
PURE MONOPOLY/MONOPOLY
 PERFECT COMPETITION
- describes a market structure, where many small firms compete
against each other.
NUMBER OF SELLERS: MANY FIRMS
NUMBER OF BUYERS: MANY BUYERS
BARRIERS TO ENTRY: NONE
ENTRY AND EXIT ACTIVITY: YES, FIRMS HAVE THE
FREEDOM TO ENTER AND EXIT
IDENTICAL OR DIFFERENTIATED PRODUCT: IDENTICAL
PRODUCT, ALL GOODS ARE PERFECT SUBSTITUTES FOR
CONSUMERS
 MONOPOLISTIC
COMPETITION
also refers to a market structure, where many small firms compete against each other.
However, unlike in perfect competition, the firms in monopolistic competition sell
differentiated products, meaning they are similar, but not identical products.
NUMBER OF SELLERS: MANY FIRMS WITH NON- INTERDEPENDENT PRICING
AND QUANTITY DECISIONS
NUMBER OF BUYERS: MANY BUYERS
BARRIERS TO ENTRY: VERY LOW
ENTRY AND EXIT ACTIVITY: YES, FIRMS HAVE THE FREEDOM TO ENTER AND
EXIT
IDENTICAL OR DIFFERENTIATED PRODUCT: DIFFERENTIATED PRODUCTS, BUT
CLOSE SUBSTITUTES FOR CONSUMERS SO THEIR DEMAND CURVES ARE
ELASTIC
 OLIGOPOLY
describes a market structure that is dominated by only a small number of firms.
This results in a state of limited competition. The firms can either compete against
each other or collaborate.
NUMBER OF SELLERS: FEW FIRMS WITH INTERDEPENDENT PRICING
AND QUANTITY DECISION
NUMBER OF BUYERS: MANY BUYERS
BARRIERS TO ENTRY: HIGH
ENTRY AND EXIT ACTIVITY: DIFFICULT ENTRY (OFTEN DUE TO
ECONOMIES OF SCALE)
IDENTICAL OR DIFFERENTIATED PRODUCT: PRODUCTS CAN BE
EITHER DIFFERENTIATED OR NON-DIFFERENTIATED
 PURE
MONOPOLY/MONOPOLY
refers to a market structure where a single firm controls the entire
market.
NUMBER OF SELLERS: SINGLE SELLER
NUMBER OF BUYERS: MANY BUYERS
BARRIERS TO ENTRY: COMPLETE
ENTRY AND EXIT ACTIVITY: ENTRY BLOCKED
IDENTICAL OR DIFFERENTIATED PRODUCT: A SINGLE,
IDENTICAL PRODUCT WITH NO CLOSE SUBSTITUTES