Market Structures - Study Notes
1. Definition
A market structure refers to the features that determine the behaviour and performance of firms within an
industry.
2. Spectrum of Market Structures
Market Structure Competition Sellers
Monopoly None 1
Oligopoly Limited Few
Monopolistic Competition Moderate Many
Perfect Competition Complete Many
3. Perfect Competition
Definition: Many buyers and sellers producing a homogeneous product.
- Firms are price-takers.
- Perfect knowledge exists.
- Free entry and exit.
- Real-world examples: Stock exchange, gas stations.
In-Text Questions - Perfect Competition
ITQ1: Example - Flour (e.g. National Flour Mills)
ITQ2: Small businesses can't conquer the market due to many competitors.
ITQ3: Gas stations and stock exchange exhibit many features of perfect competition.
4. Monopoly
Definition: One seller supplies a unique product.
- Price-maker, imperfect knowledge.
- High barriers to entry.
Examples: Carib Brewery, Angostura, WASA.
Market Structures - Study Notes
5. Monopolistic Competition
Definition: Many buyers and sellers, with differentiated products.
- Imperfect knowledge, some market power.
- Low barriers to entry.
Examples: Restaurants, salons, supermarkets.
In-Text Questions - Monopolistic Competition
ITQ4: Branded products - Coca-Cola, Apple.
ITQ5: Examples - Cafés, clothing shops.
ITQ6: From perfect competition: many sellers, entry/exit. From monopoly: product differentiation.
6. Oligopoly
Definition: Few sellers and many buyers.
- Homogeneous or differentiated products.
- Imperfect knowledge, price rigidity.
- High barriers to entry.
Examples: Banks, petroleum, detergent.
In-Text Questions - Oligopoly
ITQ7: Firms - Republic Bank, Carib, Sol.
ITQ8: Price changes result in revenue loss due to competition reactions (price war).
7. Summary Table of Features
Feature Monopoly Oligopoly Monopolistic Perfect
Sellers 1 Few Many Many
Buyers Many Many Many Many
Product Unique Homogeneous/Diff. Differentiated Homogeneous
Knowledge Imperfect Imperfect Imperfect Perfect
Price Maker Maker (rigid) Maker Taker
Entry Blocked High Barriers Low Barriers Free
