foreign we have now discussed the four major Market structures for an industry perfect competition monopolistic competition oligopoly and Monopoly first what do I mean by market structure this is sometimes called industrial organization and it's the way firms in a particular industry are organized let's compare and contrast these different structures first we can think about the types of products eat firms in each structure produce in perfect competition each firm is producing identical products the avocado industry is probably best classified as perfectly competitive lots of different farms in California and Mexico grow avocados and for the most part their avocados are indistinguishable from each other or at least few customers care about the differences the pro these products are identical monopolistic competition has differentiated products meaning that no two Farms are producing the exact same thing the toy industry is probably best classified as monopolistically competitive each firm tries to make toys which are different from their competitors oligopolies can have identical or differentiated products cellular service is pretty much identical no matter what company you buy it from but video game consoles are differentiated the Nintendo switch is unlike the Xbox which is different from the PlayStation for a monopoly there's no comparison to make because the monopolist does not face any competition we can also compare each structure based on the number of firms both perfect competition and monopolistic competition are structures with many firms there are many avocado farms and many toy manufacturers but the number of firms is the distinguishing feature for oligopolies and monopolies an oligopoly has just a few firms like cellular service providers or gaming consoles a monopoly has literally one firm in it producing everything such as an electric company the size of each industry is explained by the barriers to entry perfect competition in monopolistic competition both have low barriers to entry pretty much anyone can start growing avocados if they live in the right climate and you also don't need to jump through many hurdles to start making toys but oligopolies have high barriers to entry it would be very expensive and difficult to start your own cell service company or to make a gaming console that actually has games available to play on it and a monopoly has even higher barriers to entry no matter how determined you are you would simply not be allowed to start your own Electric Company so what are The Economic Consequences of each structure perfect competition is ideal because the price set by the market will be equal to marginal cost which means the price is sending the right signal about the value of this product everyone who's willing to pay the cost of the resources used will be able to buy the products in this market and there's no deadweight loss that isn't true in the other structures where there is an increasing amount of Market power as we move from left to right in monopolistic competition the price will be set above marginal cost meaning some deadweight loss and Market inefficiency but oligopolis will set their price even higher than that and with even more inefficiency and dead weight loss and a monopoly sets the price highest of all with the most deadweight loss but don't forget that because deadweight loss is so undesirable firms want to try and find a way to fix this we talked before about the Bertrand model which can apply to oligopolies and monopolistic competition where firms might compete on the price and drive it down all the way to marginal cost and price discrimination is another way these Market structures along with monopolies can increase efficiency and our last feature is about the profit earned in each industry since they have many firms and low barriers to entry firms in perfect competition and monopolistic competition will see Zero economic profits at least they will in the long run it's possible for these firms in these industries to experience positive economic profits but over time competition will eat into those until they fall to zero oligopolies and monopolies enjoy the protection of barriers to entry though and unless those come down they will be able to earn positive economic profits well into the future and while firms want profit profit is good for firms positive economic profits are not a good thing remember economic profits are above and beyond the profit needed to make the business a success and it's no good when we give companies more money than they require with these descriptions it's pretty easy to tell what kind of Market structure an industry falls into but there is a measure of Market concentration which can help us further Define these Market concentration measures the extent to which market shares are concentrated between a small number of firms it's often taken as a proxy for the intensity of competition we can look at all the firms in a market and see what percentage of total sales for the whole industry each firm has if only a few firms have the vast majority of sales then that market would be highly concentrated a common measure of Market concentration was developed by The Economist Orris herfindall and Albert hirschmann the herfandahl Hershman index or hhi is a measure of Market concentration which uses the market share of each firm in the industry you can calculate the hhi with this equation it's the sum of each market share squared let's learn about this with an example in 2019 the Walt Disney Company completed their acquisition of 20th Century Fox further concentrating the film industry here we can see the domestic box office market share for the six major Studios what this chart tells us is that between 1995 and 2018 21 of all the tickets sold at all movie theaters were for movies distributed by Walt Disney Studios 19.6 percent of all tickets were sold for Warner Brothers movies 15.7 percent were for Sony Pictures which also owns Columbia 15 were for Fox 14.8 percent were for Universal movies and 13.9 percent were for Paramount Pictures with these numbers we can calculate the hhi first we take each percentage and put it in decimal form the hhi equation tells us that we need to take each one of these market shares and square them then we'll add each of them up when we do that we get an hhi of 0.17089 I recommend you pause the video here and try this calculation yourself just to make sure you've got it once you have the hhi we need to interpret it so what does an hhi of 0.17089 mean these are not scientific thresholds but they are good rules of thumb if an industry is competitive we would expect to see an hhi below 0.2 if the hhi is between 0.2 and 0.6 that points towards an oligopoly and an hhi over 0.6 means the market is probably dominated by a single firm rhhi was 0.17089 Which is less than 0.2 so that points us to perfect competition or monopolistic competition to settle on one of them we just need to think about the kinds of products being made in this industry in the film industry every movie is different so that points us to monopolistic competition with its differentiated products it would seem six sperms is enough to keep things pretty competitive but what about five when Disney bought Fox they took over its whole operation absorbing its 15 market share into its own meaning that Disney's market share jumped from 21 to 36 percent we can use these updated numbers to calculate the new hhi we need to gather each market share Square it and then add them together now we get an hhi of 0.23389 which we would classify as an oligopoly because it's above 0.2 but still less than 0.6 hhi is a useful metric for how much competition there is in a market and helps us to differentiate between our four Market structures