essay on market structure

Market Structure

How different industries are classified and differentiated based on their degree and nature of competition for services and goods

What is Market Structure?

Market structure, in economics, refers to how different industries are classified and differentiated based on their degree and nature of competition for goods and services. It is based on the characteristics that influence the behavior and outcomes of companies working in a specific market.

Some of the factors that determine a market structure include the number of buyers and sellers, ability to negotiate, degree of concentration, degree of differentiation of products , and the ease or difficulty of entering and exiting the market.

• Market structure refers to how different industries are classified and differentiated based on their degree and nature of competition for services and goods.
• The four popular types of market structures include perfect competition, oligopoly market, monopoly market, and monopolistic competition.
• Market structures show the relations between sellers and other sellers, sellers to buyers, or more.

Understanding Market Structures

In economics, market structures can be understood well by closely examining an array of factors or features exhibited by different players. It is common to differentiate these markets across the following seven distinct features.

• The industry’s buyer structure
• The turnover of customers
• The extent of product differentiation
• The nature of costs of inputs
• The number of players in the market
• Vertical integration extent in the same industry
• The largest player’s market share

By cross-examining the above features against each other, similar traits can be established. Therefore, it becomes easier to categorize and differentiate companies across related industries. Based on the above features, economists have used this information to describe four distinct types of market structures. They include perfect competition, oligopoly market, monopoly market, and monopolistic competition.

Types of Market Structures

1. perfect competition.

Perfect competition occurs when there is a large number of small companies competing against each other. They sell similar products (homogeneous), lack price influence over the commodities, and are free to enter or exit the market.

Consumers in this type of market have full knowledge of the goods being sold. They are aware of the prices charged on them and the product branding . In the real world, the pure form of this type of market structure rarely exists. However, it is useful when comparing companies with similar features. This market is unrealistic as it faces some significant criticisms described below.

• No incentive for innovation: In the real world, if competition exists and a company holds a dominant market share, there is a tendency to increase innovation to beat the competitors and maintain the status quo. However, in a perfectly competitive market, the profit margin is fixed, and sellers cannot increase prices, or they will lose their customers.
• There are very few barriers to entry: Any company can enter the market and start selling the product. Therefore, incumbents must stay proactive to maintain market share.

2. Monopolistic Competition

Monopolistic competition refers to an imperfectly competitive market with the traits of both the monopoly and competitive market. Sellers compete among themselves and can differentiate their goods in terms of quality and branding to look different. In this type of competition, sellers consider the price charged by their competitors and ignore the impact of their own prices on their competition.

When comparing monopolistic competition in the short term and long term, there are two distinct aspects that are observed. In the short term, the monopolistic company maximizes its profits and enjoys all the benefits as a monopoly.

The company initially produces many products as the demand is high. Therefore, its Marginal Revenue (MR) corresponds to its Marginal Cost (MC). However, MR diminishes over time as new companies enter the market with differentiated products affecting demand, leading to less profit.

3. Oligopoly

An oligopoly market consists of a small number of large companies that sell differentiated or identical products. Since there are few players in the market, their competitive strategies are dependent on each other.

For example, if one of the actors decides to reduce the price of its products, the action will trigger other actors to lower their prices, too. On the other hand, a price increase may influence others not to take any action in the anticipation consumers will opt for their products. Therefore, strategic planning by these types of players is a must.

In a situation where companies mutually compete, they may create agreements to share the market by restricting production, leading to supernormal profits. This holds if either party honors the Nash equilibrium state and neither is tempted to engage in the prisoner’s dilemma. In such an agreement, they work like monopolies. The collusion is referred to as cartels.

4. Monopoly

In a monopoly market, a single company represents the whole industry. It has no competitor, and it is the sole seller of products in the entire market. This type of market is characterized by factors such as the sole claim to ownership of resources, patent and copyright, licenses issued by the government, or high initial setup costs.

All the above characteristics associated with monopoly restrict other companies from entering the market. The company, therefore, remains a single seller because it has the power to control the market and set prices for its goods.

Related Readings

Thank you for reading CFI’s guide on Market Structure. To keep learning and developing your knowledge of financial analysis, we highly recommend the additional resources below:

• Herfindahl-Hirschman Index (HHI)
• Imperfect Competition
• Legal Monopoly
• Nash Equilibrium
• See all economics resources

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Table of Contents

What is market structure, types of market structures, monopolistic markets characteristics, oligopoly characteristics, perfectly competitive market characteristics, final thought, market structure: definition, types, features and fluctuations.

You all must have read about the immense scope of markets in economics textbooks. But what does market structure look like in the real world? Market structure can be categorized based on the competition levels and the nature of markets. Let’s look into the details of market structure in this article. 

Market structure refers to the way that various industries are classified and differentiated in accordance with their degree and nature of competition for products and services. It consists of four types: perfect competition, oligopolistic markets, monopolistic markets, and monopolistic competition.

According to economic theory, market structure describes how firms are differentiated and categorized by the types of products they sell and how those items influence their operations. A market structure helps us to understand what differentiates markets from one another.

In economics, market structure is the number of firms producing identical products which are homogeneous. The types of market structures include the following:

• Monopolistic competition, also called competitive market, where there is a large number of firms, each having a small proportion of the market share and slightly differentiated products.
• Oligopoly, in which a market is by a small number of firms that together control the majority of the market share.
• Duopoly, a special case of an oligopoly with two firms.
• Monopsony, when there is only one buyer in a market.
• Oligopsony, a market in which many sellers can be present but meet only a few buyers.
• Monopoly, in which there is only one provider of a product or service.
• Natural monopoly, a monopoly in which economies of scale cause efficiency to increase continuously with the size of the firm. A firm is a natural monopoly if it is able to serve the entire market demand at a lower cost than any combination of two or more smaller, more specialized firms.
• Perfect competition, a theoretical market structure that features no barriers to entry, an unlimited number of producers and consumers, and a perfectly elastic demand curve.

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The imperfectly competitive structure is quite identical to the realistic market conditions where some monopolistic competitors, monopolists, oligopolists and duopolists exist and dominate the market conditions. The elements of Market Structure include the number and size distribution of firms, entry conditions, and the extent of differentiation.

These somewhat abstract concerns tend to determine some but not all details of a specific concrete market system where buyers and sellers actually meet and commit to trade. Competition is useful because it reveals actual customer demand and induces the seller (operator) to provide service quality levels and price levels that buyers (customers) want, typically subject to the seller’s financial need to cover its costs. In other words, competition can align the seller’s interests with the buyer’s interests and can cause the seller to reveal his true costs and other private information. In the absence of perfect competition, three basic approaches can be adopted to deal with problems related to the control of market power and an asymmetry between the government and the operator with respect to objectives and information: (a) subjecting the operator to competitive pressures, (b) gathering information on the operator and the market, and (c) applying incentive regulation.

Monopolistically competitive markets have the following characteristics:

• There are many producers and many consumers in the market, and no business has total control over the market price.
• Consumers perceive that there are non-price differences among the competitors' products.
• There are few barriers to entry and exit.
• Producers have a degree of control over price.

The long-run characteristics of a monopolistically competitive market are almost the same as a perfectly competitive market. Two differences between the two are that monopolistic competition produces heterogeneous products and that monopolistic competition involves a great deal of non-price competition, which is based on subtle product differentiation. A firm making profits in the short run will nonetheless only break even in the long run because demand will decrease and average total cost will increase. This means in the long run, a monopolistically competitive firm will make zero economic profit. This illustrates the amount of influence the firm has over the market; because of brand loyalty, it can raise its prices without losing all of its customers. This means that an individual firm's demand curve is downward sloping, in contrast to perfect competition, which has a perfectly elastic demand schedule.

• Profit maximization conditions: An oligopoly maximizes profits by producing where marginal revenue equals marginal costs.
• Ability to set price: Oligopolies are price setters rather than price takers.
• Entry and exit: Barriers to entry are high. The most important barriers are economies of scale, patents, access to expensive and complex technology, and strategic actions by incumbent firms designed to discourage or destroy nascent firms. Additional sources of barriers to entry often result from government regulation favoring existing firms making it difficult for new firms to enter the market.
• Number of firms: "Few" – a "handful" of sellers. There are so few firms that the actions of one firm can influence the actions of the other firms.
• Long run profits: Oligopolies can retain long run abnormal profits. High barriers of entry prevent sideline firms from entering the market to capture excess profits.
• Product differentiation: Product may be homogeneous (steel) or differentiated (automobiles).
• Perfect knowledge: Assumptions about perfect knowledge vary but the knowledge of various economic factors can be generally described as selective. Oligopolies have perfect knowledge of their own cost and demand functions but their inter-firm information may be incomplete. Buyers have only imperfect knowledge as to price, cost and product quality.
• Interdependence: The distinctive feature of an oligopoly is interdependence. Oligopolies are typically composed of a few large firms. Each firm is so large that its actions affect market conditions. Therefore the competing firms will be aware of a firm's market actions and will respond appropriately. This means that in contemplating a market action, a firm must take into consideration the possible reactions of all competing firms and the firm's countermoves. It is very much like a game of chess or pool in which a player must anticipate a whole sequence of moves and countermoves in determining how to achieve his or her objectives. For example, an oligopoly considering a price reduction may wish to estimate the likelihood that competing firms would also lower their prices and possibly trigger a ruinous price war. Or if the firm is considering a price increase, it may want to know whether other firms will also increase prices or hold existing prices constant. This high degree of interdependence and need to be aware of what other firms are doing or might do is to be contrasted with lack of interdependence in other market structures. In a perfectly competitive (PC) market there is zero interdependence because no firm is large enough to affect market price. All firms in a PC market are price takers, as current market selling price can be followed predictably to maximize short-term profits. In a monopoly, there are no competitors to be concerned about. In a monopolistically-competitive market, each firm's effects on market conditions is so negligible as to be safely ignored by competitors.
• Non-Price Competition: Oligopolies tend to compete on terms other than price. Loyalty schemes, advertisement, and product differentiation are all examples of non-price competition
• Infinite buyers and sellers – An infinite number of consumers with the willingness and ability to buy the product at a certain price, and infinite producers with the willingness and ability to supply the product at a certain price.
• Zero entry and exit barriers – A lack of entry and exit barriers makes it extremely easy to enter or exit a perfectly competitive market.
• Perfect factor mobility – In the long run factors of production are perfectly mobile, allowing free long term adjustments to changing market conditions.
• Perfect information - All consumers and producers are assumed to have perfect knowledge of price, utility, quality and production methods of products.
• Zero transaction costs - Buyers and sellers do not incur costs in making an exchange of goods in a perfectly competitive market.
• Profit maximizing - Firms are assumed to sell where marginal costs meet marginal revenue, where the most profit is generated.
• Homogenous products - The qualities and characteristics of a market good or service do not vary between different suppliers.
• Non-increasing returns to scale - The lack of increasing returns to scale (or economies of scale) ensures that there will always be a sufficient number of firms in the industry.
• Property rights - Well defined property rights determine what may be sold, as well as what rights are conferred on the buyer.

The correct sequence of the market structure from most to least competitive is perfect competition, imperfect competition, oligopoly and pure monopoly. The main criteria by which one can distinguish between different market structures are the number and size of producers and consumers in the market, the type of goods and services being traded and the degree to which information can flow freely.

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Types of market structure

• Perfect competition – Many firms, freedom of entry, homogeneous product, normal profit.
• Monopoly diagram
• Oligopoly diagram
• Collusive behaviour – firms seek to form an agreement to increase prices.
• Kinked demand curve model – when prices are stable and firms compete on non-price competition.
• Monopolistic competition – Freedom of entry and exit, but firms have differentiated products. Likelihood of normal profits in the long term.
• Contestable markets – An industry with freedom of entry and exit, low sunk costs. The theory of contestability suggests the number of firms is not so important, but the threat of competition.
• Duopoly  – where two firms dominate the market. For example, Pepsi and Coca Cola. Android vs Apple. A duopoly falls between a monopoly and oligopoly.

Related pages

• Objectives of firms
• Bertrand competition – (a competitive duopoly)

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Essay on market structure.

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Business competition takes on different forms depending on the type of market structure present in a given industry. This sample essay explores the four primary models of market structure:

• Perfect competition
• Monopolistic competition

Different types of market structure and competition

In the world of economics, the competition between businesses is not always the same or level. Certain fields of industry have very different types of markets than that of others. Where one business could find itself in a field of competition where the playing field is leveled and easy to gain a foothold within, others find themselves in playing fields that are heavily stacked to favor one (or several large) industrial player. The most common forms of market structure that are seen in the economic world are:

All of these market structures have defining characteristics that separate them from each other and are all set up in a way that will have a dramatic distinction on how the competition within that market works. The defining characteristics of the market structure will be one of the most important determining factors in how many, as well as, how large the major players within that particular market become.

One such example of a company that operates efficiently within its particular market structure is Samsung Electronics. By understanding and playing to the strengths of the market structure that the company finds itself within, Samsung Electronics has been able to become one of the largest and most financially successful companies in the business world.

Perfect competition and equilibrium within the market structure

The first market structure to be described is named perfect competition. This market structure is most easily recognized by the fact that its low barriers for entry on both the buyer and seller allow for the continued operation of a large number of firms (Econ Guru, 2006). With a market structure such as this, new firms are able to constantly enter the market so long as they offer a product or service to a consumer base that is well received.

The economic efficiency within the perfect competition market structure, therefore, is seen to be very high because of these low entry barriers for new firms, which allows for a constant and continued level of competition to be maintained by the different number of firms within the particular market (Riley, 2012). One of the benefits of perfect competition is easier access to market segmentation and determining the demographics of the market . One of the most surprising factors about this sort of market structure, however, is seen when examining the innovative behavior of firms within this market.

Upon first glance, one would naturally be inclined to believe that the innovative behavior for a perfect competition market would be very strong because start-up firms would want to bring new, creative ways to market in order to propel their firms into a position of exposure and success. Research shows this hypothesis to be incorrect, though. Instead, the innovative behavior of a perfect competition market is relatively weak.

“In capitalist reality as distinguished from its textbook picture, it is not that kind of competition which counts but the competition which commands a decisive cost or quality advantage and which strikes not at the margins of profits and the outputs of the existing firms but at their foundations and their very lives,” (Riley, 2012).

The old style monopolistic competition market structure

The next type of market structure to be examined is the monopolistic competition market structure.

Within this type of market, one would typically expect to see a large number of firms that produce a “congeneric product with distinguishable differentiations,” (Econ Guru, 2006).

This means that firms within this market structure will have many different competitors within the market, but each competitor will be selling a slightly different type of product. Within this market, the entry barriers for both the buyer and the seller are very low and allow for easy entry or exit from the market (Hubbard & O’Brien). Compare Google Docs and Microsoft Word for example. Both companies offer data and word processing software that have similar but distinctly difference attributes.

One of the distinguishing features for firms within this market structure comes from the pricing found within it. Within a monopolistic competition market, the firms act as the price makers; they can set, raise, and lower the price of their products because they are selling something that is highly individualized (Economics Online).

Because of the set up of this market structure, the level of innovation is considered to be quite strong as firms entering the market can make subtle changes to existing products to form new, unique ones. This market structure, therefore, places a high emphasis on advertising.

Firms that operate within the monopolistic competition market are, “often in fierce competition with other (local) firms offering a similar product or service, and may need to advertise on a local basis, to let customers know their differences, ” (Economics Online).

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Monopoly's role within a structured economy

A third market structure seen in the economic world is the monopoly. The monopoly is characterized as a market in which there is only one provider for a good or service to consumers (Econ Guru). Within this type of market structure, the barriers for entry are extremely high as the firm with all of the power in the market can undercut its prices and force competitors out of the market. The United States started to abolish monopolies within the nation during the 1890's with the enactment of the Sherman Antitrust Act .

From a buyer’s perspective, the barriers are low as their selection for products or services is so limited. In a pure monopoly with only one firm controlling the market, the type of product is very limited; in fact, it is exclusively limited to what that particular firm offers to its consumers (Riley, 2012).

Being the controlling power of the market, a firm operating within a monopoly is considered to be a price maker in that it will be able to continually set, raise, and lower the cost of its offered product or service. Within this type of market structure, the economic efficiency does run the risk of being damaged as the controlling firm will not have to deal with any competition, which could allow for the firm to become inefficient over time (Riley, 2012).

The same holds true for the innovative behavior within a monopolistic market. The controlling firm has no real reason to be constantly reimagining and redesigning its products or services and can instead release upgrades and updates at its own pace with no real urgency. Although, it is worth noting that a firm that holds a monopoly on the market could also have a strong innovative behavior because it is able to spend a great deal of its profits on research and development.

Oligopolies and corporations' efforts to control the market

The final market structure to observe is the oligopoly. Similar to a monopoly in many regards, the oligopoly has one major difference when compared to the former. Within a monopoly, there is one firm that controls the market, whereas an oligopoly has a few firms that dominate the market (Econ Guru, 2006). A market structure such as this will place considerable barriers on new firms that are entering the market as they must compete with several corporate giants, but will put limited barriers on the buyer because of the different options available to him or her.

The firms that dominate the market of an oligopoly can act, for the greater part, as price makers so long as the dominant firms keep their prices relatively similar (Riley, 2012). One such example of this occurring in the real world is seen in the gas industry. The large firms that control the industry are able to set the price for gasoline to whatever they should choose so long as the competition does not dramatically lower their own prices and attract a larger proportion of the market to utilize its product exclusively. It is within this market that the innovative behavior is observed to be the highest (Riley, 2012).

The dominant firms are seen to spend a significant portion of their marketing resources on research and development so that they can have the most innovative products to offer to their consumer base in order to attempt to gain a larger control of the market and gain a competitive advantage over their major competitors. It is this sort of market structure that Samsung Electronics finds itself a part of.

Samsung Electronics operates in a market that is clearly an oligopoly. One of the major components to this firm is seen in its cellular phone sales. In this market, Samsung operates as a dominant force along with such companies as Apple, Motorola, and LG. Outside of these major players, the competition is much more limited.

It is extremely difficult for outside firms to gain a foothold in this market because the dominant firms have such a large percentage control of the consumer base currently. The effectiveness of the market structure is extremely beneficial for Samsung, and they have taken full advantage of it to become one of the most dominant firms in their particular market. It is directly from the structure of the market that the forms of labor and demand are shaped for Samsung.

Samsung and the oligopoly

The demand that Samsung receives is based almost entirely as a consequence of the market structure of an oligopoly. Because Samsung created a business strategy that is able to dominate the market and place a high emphasis on the research and development of new, innovative products, the firm is able to offer technologically superior products to its consumer base that allows for the demand for its products to rise.

The Galaxy S III is a perfect example of this. This particular product is so innovative and well designed that it has allowed Samsung to become one of the top sellers of mobile phones worldwide and has consistently beaten out the iPhone 5 (Samsung’s main competition from Apple) on a consistent basis. In terms of labor, as well as supply, the same basic principle holds true.

It is because of the dominant share of the market that Samsung controls by successfully navigating its market structure that allows for the company to produce so many products and keep its supply high enough to meet the demand facing it, and in order to produce such a high supply of new, innovative products, Samsung is able to employ a large labor force for everything from assembly of a product to research and development of new ways to design, market, and ultimately sell to its consumer base.

Market structures play a key role in the way a firm is able to do business. By understanding what sort of market structure that a firm is placed in, that firm will be able to see if the cost of business is worth continuing to fight for. The factors that separate the different types of market structures can be the difference in whether or not a start-up firm will be able to become successful or be driven from business by the major players that currently exist in that particular market structure.

It is by understanding and playing to the market structure that certain companies such as Samsung Electronics have been able to become so successful. Different market structures place emphasis on different factors; however, one truth is held. In the end, every firm is simply trying to push its products or services onto its consumer base. This is one of many economic axioms that has come about as a result of study and research paper writing .

Econ Guru. (2006). Market structure. EconGuru Economics Guide, Retrieved from http://www.econguru.com/micro/market-structure.shtml

Economics Online. (2012). Monopolistic competition. Economics Online, Retrieved from http://www.economicsonline.co.uk/Business_economics/Monopolistic_competition.html

Hubbard, R. G., & O'Brien, (2012). Economics. (4th ed.). Prentice Hall.

Riley, G. (2012, September 23). Market structure summary. Tutor2u, Retrieved from http://www.tutor2u.net/economics/revision-notes/a2-micro-market-structures-summary.html

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Introduction

Perfect competition, monopolistic competition, case study with examples.

A market structure is a tool used to determine the pricing power of certain products in diverse firms. Research has shown that there are numerous market structures with unique pricing strategies in place. The price of goods and services in a firm depend on the levels of demand, cost conditions and competition.

Besides, price fixation is one of the key managerial functions. It is frequently reviewed to ensure that a firm makes a reasonable profit margin. The market conditions determine the type of market structure and pricing criteria to be used in a particular firm. Moreover, businesses cannot operate in isolation.

In other words, a firm requires a robust marketing platform for it to operate effectively. Hence, it is important to select an appropriate market structure for a business to make significant returns. Economists have identified four major market structures that are unique in terms of both operation and effectiveness in meeting the demands of customer. The market structures have been discussed in this paper in relation to pricing strategies.

A market structure can be defined as a core characteristic that makes up a platform for buying and selling goods and services (Samuelson & Marks, 2006). It is common knowledge that a market exists when there are buyers, sellers, products, competition, product differentiation as well as the ease of entry or exit.

From this definition, Rubin and Dnes (2010) highlight that market structures are individual aspects that influence the behavior of buyers and sellers. Ellickson, Misra and Nair (2012) also define a market structure as the number of firms in a market that are able to produce similar goods or services. The nature of a market structure greatly influences the behavior of producers.

Therefore, it affects the market price of a particular commodity or service (Rubin & Dnes, 2010). In addition, a market environment affects the supply of commodities and equally creates barriers for entry. This paper discusses some of the notable market structure by analyzing their pricing strategies alongside relevant examples.

Description

This describes a situation whereby a firm does not have a particular independent pricing policy. Therefore, firms that embrace this market structure have to comply with the prevailing market prices (Samuelson & Marks, 2006). At this point, a firm is at liberty to market its goods and services.

Lack of control over a market often creates an open platform for buyers to choose less costly products. If a firm sets very high prices in a marketplace, it might end up making few or no sale at all. It is important to note that in this type of a market structure, there is no specified price for certain quality or quantity of goods (Rubin & Dnes, 2010).

Therefore, it is upon the seller to decide which quantity to offer and at what price. Typical firms have no influence over demand and supply because new sellers enter the market as they wish. Ellickson et al (2012) assert that typical competitors in such a market end up earning no profit at all. Rubin and Dnes (2010) point out that there are no barriers to enter or exit such a market structure since there are unlimited number of both sellers and buyers.

From an economic perspective, this market structure exists when firms produce similar and standardized products. It implies that different firms only compete for prices. Moreover, buyers are aware that price competition exists. Therefore, all the available products must be sold at a common or poplar market price (Rubin & Dnes, 2010).

Both consumers and firms also tend to countercheck the price even though they have no direct influence on the market. In order for a firm to maintain its customers, it is compelled to sell either at the prevailing market price or at a lower price altogether (Samuelson & Marks, 2006). Therefore, firms end up selling a small proportion of their total output.

Pricing Strategies

Prices are determined by the forces of supply and demand. It is worth to note that there is perfect substitution where all firms produce homogenous, standardized and undifferentiated products. At this point, the demand curve in each firm is perfectly elastic and horizontal to the price line (Rubin & Dnes, 2010).

This implies that a firm can only sell some of its output without altering the price. Any slight increase in price results into lack of sales since buyers tend to resort to a substitute from other competitors. In this type of a market structure, the “law of one price” does not change and all market transactions are done at the same price (Samuelson & Marks, 2006).

In this type of a market structure, a firm ignores a market price and sets it own pricing without considering the causal effects of other firms with different prices. In this case, a group of producers offer a common product that is not identical. Therefore, it triggers competition.

Firms deliberately differentiate their products and set prices that are competitive in nature (Samuelson & Marks, 2006). It is important to note that there are no market barriers. Monopolistic competition resembles a perfect competition model except that the products of the former are different.

Firms set their own prices that are different from those of competitors since products sold are also differentiated in terms of quality and quantity. In this case, firms aim to create brand names by reinforcing product differences (Rubin & Dnes, 2010).

Product differentiation is one of the strategies that enable producers to set high prices without necessarily losing market dominance to competitors. It is worth to note that the demand is elastic hence; firms can increase their prices whenever they wish to do so (Samuelson & Marks, 2006).

In this case, about three sellers occupy a larger share in a particular market. The firms may experience price wars as they compete against each other for maximum gains. Increasing prices affects the volume of sales of other firms (Ellickson et al., 2012). For instance, when one of the competing firms increases its market prices, consumers will obviously buy from the competitors.

Therefore, producers must assess the impacts of their decisions in order to decrease or increase prices. It is worth to note that few sellers in the market may be rivals. This may eventually lead to conflict (Samuelson & Marks, 2006). However, there is great ease of entry into the market unlike the case with a monopolistic structure.

Sellers first understand the behavior of consumers before setting prices. The pricing policy of an individual producer affects others. Therefore, there is an element of price rigidity that compels producers to opt for non-price competition (Samuelson & Marks, 2006). At this point, prices are no longer depicted by demand and supply.

Prices are set after critical, interactive and strategic thinking (Samuelson & Marks, 2006). The fate of oligopoly pricing strategy is interdependent even though it is determined by economic factors such as consumers’ tastes and preferences.

This refers to a market structure whereby there is only one seller of a particular product. In other words, a single firm in the market offers goods or services to consumers. Nonetheless, pure monopolies are rare. From the statistical review of literature, it is evident that a monopolistic market generates approximately 3% of the gross domestic product (GDP) in the developed economies such as the US and UK (Samuelson & Marks, 2006).

Hence, monopoly exists when 90% of the market is dominated by a single firm. Rubin and Dnes (2010) elucidate that barriers to market entry are common in this type of market structure. This is a precondition that is deliberately set to prevent other firms from venturing into the market (Rubin & Dnes, 2010). Furthermore, there are no perfect substitutes. Consumers have no choices to make since they have to buy products available in the market.

Prices of goods and services are determined by single players in this type of a market structure. Most monopolists use trial and error method when pricing their products. Ellickson et al (2012) argue that monopolists also determine prices by balances profits and losses.

When a firm reaches an equilibrium point where marginal costs are in the same level with marginal returns, monopolists decide their best market price (Samuelson & Marks, 2006). Usually, monopolists set higher prices that generate maximum gains. However, a firm may differentiate prices for various buyers in diverse regions. The price differentiation approach depends on the elasticity of demand.

Dumping is also a pricing strategy used by monopolists (Rubin & Dnes, 2010). In this regard, products fetch higher prices at the domestic market than in the international platform. However, monopolists do not just escalate prices. In other words, the optimal price is influenced by demand (Ellickson et al., 2012).

In the last few years, intense competition has been witnessed among telecommunication companies that supply cables, satellites and other communication services. Broadcasting networks have also exercised perfect competition for several decades. Internet service providers and social media platforms such as Facebook, Twitter, Instagram and Google plus have thrived in perfect competition (Samuelson & Marks, 2006).

This has greatly encouraged other service providers to venture into the market. Besides, firms that produce and sell foodstuffs such as fast food restaurants and supermarket outlets exercise monopolistic competition. These sellers produce diverse brands that appeal to the larger market niche (Samuelson & Marks, 2006).

The deregulation of products’ varieties and discounts gives clients the freedom to purchase goods or services that they can afford. In the United States, there are limited number of organizations that offer similar services and products. For instance, the Airbus and Boeing companies are renowned aircraft companies that compete against each other (Samuelson & Marks, 2006).

There are also hybrid automobiles that compete with traditional gasoline-powered automobiles. World-renowned soft drink companies such as Coca Cola and Pespi compete through pricing strategies thereby making the market to be oligopolistic in nature (Samuelson & Marks, 2006).

Some countries such as the US and India give firms and business people exclusive rights to sell their inventions for a specified period. Therefore, some firms have patents that grant them authority to sell their products for a period of 10 years (Samuelson & Marks, 2006). This prevents other people from copying, processing or applying such ideas.

A good example is the Microsoft Company that deals with computer software. It spearheads monopoly by preventing the entry of other compute software companies into the market (Samuelson & Marks, 2006). Governments have been known to allow lawful monopolies for a given length of time.

From the above discussion, it is explicit that a market environment influences pricing strategies. There are four major market structures. These market structures have diverse attributes such as the degree of barrier to market access, the extent to which a firm controls the price, and the number of sellers.

In monopolistic and perfect competition, there are numerous sellers hence there is no entry barrier into the market. Therefore, producers set prices that are influenced by elasticity of demand. In oligopoly, there are a few sellers competing against each other and prices are determined by other economic factors apart from demand and supply.

There are significant but less prohibitive market barriers and price rigidity in oligopolistic markets. Contrastingly, a monopoly has a single firm supplying and determining the price of products in a market. There are numerous barriers that prevent other potential sellers from entering a monopolistic market.

Ellickson, P. B., Misra, S., & Nair, H. S. (2012). Repositioning Dynamics and Pricing Strategy. Journal of Marketing Research (JMR), 49 (6), 750-772.

Rubin, P. H., & Dnes, A. W. (2010). Managerial economics: a forward looking assessment. Managerial & Decision Economics, 31 (8), 497-501.

Samuelson, W., & Marks, S. G. (2006). Managerial economics . Boston: John Wiley & Sons, Inc.

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Introduction to Market Structures (Online Lesson)

Last updated 22 Jun 2020

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In this online lesson, we look at the characteristics and nature of different market structures, as well as some applied examples.

WHAT YOU'LL STUDY IN THIS ONLINE LESSON

• the characteristics of different market structures, including perfect competition, monopolistic competition, oligopoly and monopoly
• real-world application
• an introduction to contestable markets

Additional teacher guidance is available at the end of this lesson. Thank you to Peter McGinn, Penny Brooks and Jon Clark for their contributions to this lesson.

HOW TO USE THIS ONLINE LESSON

Follow along in order of the activities shown below. Some are interactive game-based activities, designed to test your understanding and application of market structures. Others are based on short videos, including activities for you to think about and try at home, as well as some extra worksheet-based activities.

If you would like to download a simple PDF worksheet to accompany the video activities, you can find it here . You can print it off and annotate it for your own notes, or make your own notes on a separate piece of paper to add to your school/college file.

ACTIVITY 1: VIDEO - OVERVIEW OF MARKET STRUCTURES

It's really important that you understand the relationships between the various market structures and how they "fit" along the spectrum of competition. This video helps you to gain that understanding.

ACTIVITY 2: VIDEO - INTRODUCTION TO PERFECT COMPETITION

This video provides an overview of perfect competition, looking at key characteristics and outcomes, as well as examples. As with all of the market structures covered in this lesson, you can cover them in more detail (along with the diagrams) in another online lesson.

ACTIVITY 3: ESSAYS - ONLINE COMPETITION

For this activity you will need to download this example essay, which considers the impact of online suppliers on levels of competition.

• Read the essay carefully - highlight or underline all of the economic key terms mentioned in the essay and check that you can define them all
• Identify any evaluation points and make a note of how you know that they would be regarded as evaluation
• Note down 5 other examples of industries in which online supplier are providing effective competition

ACTIVITY 4: VIDEO - INTRODUCTION TO MONOPOLY

Monopoly is regarded as being at the opposite end of the spectrum of competition to perfect competition. This video introduces you to the basics of monopoly.

ACTIVITY 5: EXTENSION TASK - MONOPOLY AND MONOPSONY

A monopoly is a dominant seller of a product, and uses its market power to raise prices and reduce output. A monopsony is a dominant buyer of a product, and uses its market power to reduce prices of the products thata it buys. In reality, large firms can often be both monopolies and monopsonies.

To find out more about firms that fit this category, download this tutor2u resource and follow the instructions on the download.

ACTIVITY 6: VIDEO - INTRODUCTION TO MONOPOLISTIC COMPETITION

As with the video for perfect competition, this video provides an introductory overview of the market structure of monopolistic competition. Make sure that you can distinguish between perfect and monopolistic competition after watching it!

ACTIVITY 7: VIDEO - INTRODUCTION TO OLIGOPOLY

This video provides an overview of the fascinating market structure of oligopoly.

ACTIVITY 8: GAME - CATEGORISING MARKET STRUCTURES

Test yourself on your knowledge of different market structures by having a go at this interactive game!

ACTIVITY 9: VIDEO - EVALUATING THE MARKET STRUCTURE APPROACH

Economists describe the "spectrum of competition" and the impact that market structure has on the performance/behaviour of firms as the structure-conduct-performance paradigm . This video provides some evaluation points with regards to this approach.

ACTIVITY 10: SYNOPTIC THINKING

Download this synoptic assessment mat , and apply your introductory knowledge of market structures (along with a review of other topics from Year 12!) to the industry of motor vehicle repair.

ADDITIONAL TEACHER GUIDANCE

This lesson comprises:

• Around 55 minutes of guided video content. spread across 6 videos
• Around 20 minutes of student thinking and activity time throughout the videos
• 1 interactive game designed to review and test knowledge of market structure characteristics
• an activity in which students can read an essay about the impact of online suppliers on competition
• a synoptic practice activity, which also reviews key microeconomic concepts from Year 12
• a more demanding activity, looking at firms that have both monopoly and monopsony power
• Market structure
• Monopolistic competition
• Perfect competition

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Sample Economics Essay Questions – Market Structures

JC Economics Market Structures Essay Questions

Just like any game, knowing the rules of the game will certainly help you to understand and to win the game more effortlessly. This is the same for your upcoming Prelims or eventual GCE A-Level Econs exams for H2 students, focusing on essays on Market Structures . And one of the short-cuts for your H2 Econs (9757 Syllabus) is to look through a list of questions because they give you a specific way to process your thinking, and also to check whether you are familiar with the content topic you wish to focus on in JC Economics exams.

Often students struggle with essays because they see an novel question and they panic, or simply copy-&-paste from lecture notes. One easy way to solve this is to be exposed to the possible questions for the major topics so that you will be well-prepared. You need to become used to this process of looking at an unfamiliar question and connecting it with content knowledge you have— this is the key to scoring for H2 Economics.

Here is the listing of Market Structures essay question list:

Q1. Cathay Cineplexes is exploring the viability of going “ticketless” using mobile apps and the possibility of showcasing movies in 4D in the foreseeable future.

(a) Explain how a firm like Cathay Cineplexes is likely to determine its output and pricing decisions. [10] (b) Discuss if product differentiation is the best way for cinema operators in Singapore to compete. [15] (price discrimination)

Q2. Singapore’s latest attraction, Gardens by the Bay, comprises an Outdoor Gardens with free entry and two Cooled Conservatories with entry charges. Those living in Singapore, whether Singapore citizens or foreign residents, are charged the same lower rates, compared to tourists.

(a) Explain whether the above case is an example of price discrimination. (b) To what extent is the practice of price discrimination beneficial? (price discrimination)

Q3(a) Explain with diagrams how airlines and small clothing retailers engage in price discrimination and why are they able to do so. Q3(b) Discuss the extent to which these firms aim to maximise profits according to traditional economic theory. [13] (price discrimination)

Q4. Microsoft invests billions on Research and Development (R & D) which has contributed to a stream of innovations that have transformed business and the homes. To encourage innovation, intellectual property rights are given to innovators for a period of exclusivity to earn a reasonable return on their investment. Source: The Straits Times

(a) Explain how barriers to entry affect a firm’s pricing behaviour and profits earned. (b) To what extent is Microsoft’s market power justified? (Monopoly & Oligopoly)

Q5(a) Explain how perfectly and imperfectly competitive firms determine their price and output to maximize profits. [10] Q5(b) Discuss the extent to which firms in Singapore determine their price and output to maximise profits. [15] (perfectly and imperfectly competitive firms)

Q6. Many fast food chains pride themselves in offering various menus by adopting various pricing strategies. For example, KFC offers discounts for students while McDonald’s offers 6-piece nuggets at $4.40 and 9-piece nuggets at $5.70.

(a) Explain the factors that are necessary for price discrimination to occur. (b) Discuss whether price discrimination in the fast food industry is desirable. (price discrimination)

Q7(a) Explain how firms can increase their market power Q7(b) Discuss whether dominant firms are always desirable from a society’s point of view. (Monopoly & Oligopoly)

Q8. The level of merger and acquisition activities in Asia is expected to increase substantially with economic recovery and the return of the Asian economies to their pre-financial crisis growth path.

(a) Explain why firms attempt to grow through undertaking mergers and acquisitions. (b) Discuss whether such mergers and acquisitions are in the public interest and if there is a need for government intervention. (Market Dominance, a form of Market Failure )

Q9. Restaurants across Singapore are engaging in differential pricing strategy. whereby weekend dinners pay more than weekday customers and special discounts are offered to both students and senior citizens alike.

(a) Explain how restaurants in Singapore discriminate buyers by charging different prices for the same meals. (b) Discuss the extent to which barrier to entry is the most important factor influencing a firm’s behaviour in your country. (price discrimination)

Q10. In recent years, small local firms in the retail industries in Singapore are becoming bigger and at the same time many large foreign firms have entered these industries

a) Explain the possible reasons for the above changes in the retail industries in Singapore. b) Discuss the extent to which such changes are in the interest of consumers. (Monopoly & Oligopoly)

Q11. Oligopoly is the best market structure that is able to achieve efficiency, equity and innovation. Discuss. [25] (Oligopoly)

Q12(a) Explain why prices might fluctuate less in an oligopolistic market than in a perfectly competitive market. [10] Q12(b) Discuss whether monopolistic competition is more likely to be beneficial to consumers than oligopoly. (Monopolistic Competition & Oligopoly)

Q13. In Singapore, there are many small home interior design firms in the industry. With low startup costs, these firms, such as Meng Design, usually market themselves as providing exclusive designs or affordable services. On the other hand, in the budget airline industry. Jetstar and Tiger Airways often offer lower-priced tickets.

(a) According to economic theory, firms aim to become big to enjoy. Explain why some firms remain small in reality. (10) (b) Discuss whether Jetstar’s and Meng Design’s strategies are due to the features of the industry they are in [15] (Costs Theory & Firms’ Characteristics)

Q14.Globalisation increases the level of competition among firms in a country, thereby making markets more competitive resulting in increased consumer welfare.

Assess the extent to which globalisation will lead to more competitive markets and increased consumer welfare. [25] (Firms’ Performance)

Q15. There are four players in the retail petrol industry in Singapore – Exxon Mobil (Esso), Shell, Singapore Petroleum Company and Caltex. In 2011, the Competition Commission of Singapore led an inquiry to assess whether there is collusion between competitors in the industry.

(a) Explain how the features of the retail petrol industry in Singapore affect pricing and decisions in the industry. (b) Discuss the view that firms need to engage in collusion to increase profits. (Oligopoly)

Q16(a) Explain how the size of firms affects the price and output decisions of various firms. Q16(b) Discuss the extent to which large firms in an industry impede economic efficiency. (Firms’ Performance)

Q17. Explain why the behaviour of firms differs across industries and discuss if such behaviour is desirable. [25] (Firms’ Conduct)

Q18. AMR Corp, parent of American Airlines, bowed to pressure recently from its creditors. including its largest labour unions, and said it would explore merger options while it is still in bankruptcy. Its rival, US Airways Group Inc has been expressing major interest for a possible tie-up. Source: www.reuters.com, May 2012

(a) Explain how, in economic theory, airline firms like AMR Corp would price its tickets. [10] (b) Discuss if a merger between AMR Corp and US Airways Group Inc would benefit consumers more than producers. [15] (Firms’ Performance)

Q19. Singapore Post Limited (SingPost) has been steadily expanding beyond Singapore. It will continue to diversify its business and tap the overseas markets. Its online shopping platforms, VPOST and Clout Shoppe, will accelerate its expansion in the e-commerce business.

Discuss how SingPost’s growth strategies might impact SingPost, consumers and other firms in Singapore. [25] (Monopoly)

Q20. The UK rail industry is split into franchises, in which companies are invited to bid for the rights to operate individual rail routes for a specified time period. Train operators typically sell their tickets at a lower price if they are bought in advance on the internet, and they offer both first class and economy class tickets.

(a) Explain whether the above pricing policies could be considered to be examples of price discrimination. (b) Discuss whether the UK government should regulate prices in the rail industry to protect society’s interests. (price discrimination)

Q21. With the growing numbers of people connected to the internet, electronic commerce (e-commerce) is gaining rapid acceptance.

Discuss the view that with increasing development of the internet and e-commerce, monopolistic competition would gradually become the more prevalent market structure. [25] (Monopolistic Competition)

Q22(a) Using examples, explain how a firm can enjoy economies of scale. Q22(b) To what extent do you agree that oligopoly is the most desirable form of market structure in Singapore?

Q23 (a) With the use of examples, differentiate between the key features of the monopolistic competition and oligopoly. Q23 (b) Discuss whether the survival of firms in these two models is solely dependent on their competitive strategies.

Q24 (a) Explain how, in economic theory, a perfectly competitive firm would determine the price that would maximize profits. Q24 (b) Discuss whether firms set prices at profit-maximising level in reality. [15) (Firms’ Objectives)

Q25. Profitable firms are necessary efficient firms. Examine this assertion. [25]

Q26. Pfizer’s merger with competitor Pharmacia in 2003 made it the largest pharmaceutical company amongst some ten to twelve companies. Pfizer (that give us the COVID-19 vaccine ) also boasts the industry’s largest pharmaceutical Research and Development (R&D) organisation, which invests $7.6 billion in R&D on average annually.

(a) Identify the likely type of market structure Pfizer operates in, and distinguish its key features with perfect competition. [10] (b) Examine whether having large companies, such as Pfizer, in the pharmaceutical market could beneficial to society. [15]

Q27. In 2005, London Energy invested millions of pounds in research and development (R&D) but it would take about two years before the factories are to run efficiently, and to enjoy economies of scale.

(a) Explain how London Energy’s investment affects its profits in the short run and long run. [10m) (b) Economies of scale are said to be beneficial. This means that mergers of small firms should be encouraged. Discuss [15]

Q28. Discuss whether large firms have lower unit costs than that of small firms, and assess how the government can help smaller firms to lower their unit costs. [25]

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KKR, Francisco Partners vying to acquire Instructure, sources say

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Reporting by Milana Vinn in New York; Editing by Greg Roumeliotis and Sonali Paul

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Milana Vinn reports on technology, media, and telecom (TMT) mergers and acquisitions. Her content usually appears in the markets and deals sections of the website. Milana previously worked at GLG and PE Hub, where she spent several years covering TMT deals in private equity. She graduated from CUNY Graduate School of Journalism with Masters in Business Journalism.

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Equities climb with 10-year yield barely changed, Fed rate talk in focus

A global equities gauge rose to record levels on Wednesday while the U.S. Treasury 10-year yield fell slightly as investors awaited U.S. inflation data and eyed comments by Federal Reserve Chair Jerome Powell for clues about interest rate cut prospects.