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Understanding Market Structures in Economics

Apr 23, 2025

Types of Market Structure - Economics Help

Overview

  • Author: Tejvan Pettinger
  • Dates: Updated on 2 June 2020 and 28 November 2019

Market Structures

  1. Perfect Competition

    • Characteristics: Many firms, freedom of entry, homogeneous products, normal profit.
  2. Monopoly

    • Characteristics: One firm dominates, high barriers to entry, potential for supernormal profit.
    • Diagrams: Includes a monopoly diagram.
  3. Oligopoly

    • Characteristics: Dominated by a few firms, interdependence of firms, e.g., 5 firm concentration ratio > 50%.
    • Diagrams: Includes an oligopoly diagram.
    • Collusive Behavior: Firms form agreements to increase prices.
    • Models: Kinked demand curve model where prices are stable, and firms compete on non-price factors.
  4. Monopolistic Competition

    • Characteristics: Freedom of entry and exit, differentiated products, normal profits likely in the long term.
  5. Contestable Markets

    • Characteristics: Freedom of entry and exit, low sunk costs.
    • Theory: Suggests the threat of competition is more important than the number of firms.
  6. Duopoly

    • Characteristics: Two firms dominate the market, e.g., Pepsi vs Coca-Cola, Android vs Apple.
    • Position: Falls between monopoly and oligopoly.

Related Topics

  • Mergers
  • Objectives of Firms
  • Bertrand Competition: A form of competitive duopoly.

Additional Resources

About the Author

  • Tejvan Pettinger: Studied Philosophy, Politics, and Economics (PPE) at LMH, Oxford University.

Notes

  • The lecture is comprehensive on market structures, highlighting key differences and characteristics of each type.
  • Additional diagrams and models are available for more detailed study.