Overview
This lecture compares the four market structures—perfect competition, monopolistic competition, oligopoly, and monopoly—using twelve exam-relevant criteria.
Types of Market Structures
- Four main market structures: perfect competition, monopolistic competition, oligopoly, and monopoly.
- Perfect competition and monopolistic competition have many firms; oligopoly has few firms; monopoly has only one firm.
- All market structures have many buyers.
Key Comparison Criteria
Number of Firms
- Perfect competition & monopolistic: many firms.
- Oligopoly: few firms (e.g., petrol stations, network providers).
- Monopoly: one firm (e.g., Eskom).
Nature of Product
- Perfect competition: homogeneous (identical) products, e.g., apples, maize.
- Monopolistic competition: differentiated (heterogeneous) products, e.g., fast food.
- Oligopoly: products can be homogeneous (petrol) or differentiated.
- Monopoly: unique product with no close substitutes.
Entry and Exit
- Perfect competition & monopolistic competition: free entry and exit.
- Oligopoly: entry is restricted.
- Monopoly: entry blocked.
Collusion
- Perfect competition & monopolistic competition: collusion impossible due to many firms.
- Oligopoly: collusion possible but illegal.
- Monopoly: collusion not applicable (only one firm).
Information
- Perfect competition: complete information.
- Other structures: information is incomplete.
Price Control
- Perfect competition: firms are price-takers.
- Monopolistic competition: some control, but limited.
- Oligopoly: price makers; firms set their own prices.
- Monopoly: full control over price, but limited by demand.
Demand Curve
- Perfect competition: horizontal demand curve.
- Monopolistic competition: downward-sloping, relatively elastic.
- Oligopoly: kinked demand curve.
- Monopoly: downward-sloping, inelastic.
Economic Profit (Long Run)
- Perfect & monopolistic competition: no economic profit long-term.
- Oligopoly & monopoly: possible to earn economic profit long-term.
Decision Making
- Perfect competition: one firm's decisions do not affect others.
- Other structures: decisions are influenced by rival firms.
Efficiency
- Perfect competition: achieves allocative and productive efficiency.
- Monopolistic competition: limited efficiency.
- Oligopoly & monopoly: do not achieve full efficiency.
Key Terms & Definitions
- Homogeneous product — a product that is identical across suppliers.
- Differentiated product — a product that is distinct from competitors’.
- Collusion — agreement between firms to limit competition.
- Price-taker — a firm that must accept the market price.
- Allocative efficiency — resources allocated to maximize societal welfare.
- Productive efficiency — products made at lowest possible cost.
Action Items / Next Steps
- Complete the activity: "Discuss the nature of products as criteria for distinguishing market structures" (8 marks).