4.1.5.1 Market Structures

• Perfect competition:

  • Number of firms = infinite

  • Barriers to entry/exit = none

  • Product homogeneity =homogenous

  • Knowledge = perfect

  • Profit = abnormal in SR, normal in LR

  • Independent/interdependent = independent

  • Example = currency markets
• Monopolistic:

  • Number of firms = many

  • Barriers to entry/exit = low

  • Product homogeneity = slightly differentiated

  • Knowledge = slightly imperfect/good

  • Profit = abnormal in SR, normal in LR

  • Independent/interdependent = majority independent

  • Example = Fast food markets
• Oligopoly:

  • Number of firms = few large dominant firms (2-10)

  • Barriers to entry/exit = high

  • Product homogeneity = either or

  • Knowledge = imperfect

  • Profit = can earn LR supernormal profit

  • Independent/interdependent = interdependent

  • Example = car markets
• Monopoly:

  • Number of firms = one

  • Barriers to entry/exit = very high

  • Product homogeneity = homogenous

  • Knowledge = imperfect

  • Profit = can earn LR supernormal profit

  • Independent/interdependent = interdependent

  • Example = TRANSCO
• Barriers to exit:

  • Sunk costs

  • Closure costs

  • Reputation