Market Structure

• What is market structure?

  Key characteristics of a particular market such as number and size of firms in the market, degree and intensity of price and non-price competition and nature of barriers to entry
• What is barrier to entry?

  Obstacles that prevent firms from entering a market
• Competitive market:

  • Many firms in the industry
  • None of them have any market power
  • Lot of competition
• Impact of large number of firms in competitive market:

  • Price - Price taker who set price according to market price
  • Quality - Sell identical products
  • Choice
  • Profit
• What is a monopoly market?

  A market structure where there is only one supplier of a good or service with the power to affect market supply and prices
• What is a monopoly market?

  A market structure where there is only one supplier of a good or service with the power to affect market supply and prices
• What are price makers?

  Firms that set their own price as they have the market power to do so
• Characteristics of monopoly:

  • Single supplier
  • Price maker
  • Imperfect knowledge
  • High barriers to entry
• Advantages of monopoly:

  • Operate on large scale, thus benefit from economies of scale
  • Can invest in innovation
  • Eliminate wasteful competition
• Disadvantages of monopoly:

  • Inefficient in terms of resource allocation
  • No substitutes for product
  • Prevent new firms from setting up in market, allows monopolies to continue setting high prices
  • Consumers don't make rational choices
  • Less incentive to innovate