Download Market Structures

Market Structures
SSEMI4 The student will explain the
organization and role of business and
analyze the four types of market
structures in the U.S. economy.
c. Identify the basic characteristics of
monopoly, oligopoly, monopolistic
competition, and pure competition.
Number of
Sellers
Are there many, few, or one seller(s)
of the product?
Price Setting
Power
Can the individual firms in the
market for a product have any
control over the price they charge?
Product
Differentiation
Is there any difference between the
products sold by the sellers in the
market for the good?
Non-Price
Competition
Can the firms in the market use
methods other than price to attract
customers?
Barriers to Entry: Are there any obstacles that prevent
other firms from entering the market
for the good?
Long-run Profits: Are firms in the market able to make
economic profits (long-run) as well as
accounting profits (short-run)?
Economic Profits: Money left over for a firm after covering
both out of pocket expenses (explicit
costs) and opportunity costs (implicit
costs).
Accounting
Profits:
Money left over for a firm after covering
out of pocket expenses (explicit costs).
Pure (Perfect) Competition:
A market structure
characterized by a
large number of buyer
and sellers of an
identical product.
 # of sellers = many
 Price setting power =
none
 Product differentiation =
none, product is
identical

Pure (Perfect) Competition:
Non-price competition =
None; firms sell all they
want at the market price
 Barriers = None; easy to
enter and exit the
market
 Long Run Profits =
None; firms enter to
get short-run profits
and leave when the
profits disappear

Monopolistic Competition:





A market structure
characterized by a large
number of buyers and
sellers of products that are
similar to one another
can be differentiated by
brand, quality, etc.
Example: restaurants and
retail clothing sellers
# of sellers = many
Price Setting Power = a
little bit
Monopolistic Competition:




Product Differentiation =
Yes; must differentiate to
attract consumers
Non-Price Competition =
Yes; uses lots of advertising
Barriers = None; easy to
enter and exit the market
Long-Run Profits = None;
firms enter to get shortrun profits and leave when
the profits disappear
Oligopoly





A market structure
characterized by only a few
sellers of a product who
dominate the market.
Example: breakfast cereals
and natural gas
# of sellers = few
Price setting power = Some;
practice price leader-ship;
as one raises price the
other firms follow
Product differentiation = Yes
or No; products can be
identical or differentiated
Oligopoly



Non-Price Competition =
Yes; use advertising to
attract customers
Barriers = Yes; these
firms are usually very
large and can produce
many units at low per
unit costs making it
difficult for small firms
to compete
Long-Run Profits= Yes
Monopoly
A market structure
characterized by only one
seller of a product
dominating the market.
 Example: electrical power
companies and cable
television companies
 # of sellers = One
 Price setting power = A lot;
Price seeker or price maker
 Product differentiation = No;
only one firm

Monopoly



Non-Price Competition =
Public relations; want
consumers to feel good
about the company
Barriers = Yes;
government licenses
and patents can bar
entry; ownership of
factors of production
Long-Run Profits= Yes