Ch35 Market Structures

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What is market structure?

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Market structure refers to the way in which a market is organised in terms of characteristics such as the number of firms, nature of the product, barriers to entry, control over price, availability of information, cost structures, vertical integration, and diversification.

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What are the characteristics of perfect competition?

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In perfect competition, there are many firms, an identical product, freedom of entry, perfect information, and firms are price takers.

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What defines monopolistic competition?

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Monopolistic competition is characterized by many firms, a differentiated product, low barriers to entry, some information available to firms, and firms are price makers with limited control over prices.

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What are the features of an oligopoly?

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An oligopoly operates in a market with few firms, high barriers to entry, a differentiated or identical product, and firms have some access to information and some control over price.

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What is a (pure) monopoly?

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A (pure) monopoly is where there is just one firm in the market due to high barriers to entry, with a unique product and considerable control over price. Little information is known about the firm.

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What is a natural monopoly?

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A natural monopoly is one that has falling long-run average costs and where it is sensible to have only one firm providing for the market.

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What is the purpose of barriers to entry?

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The purpose of barriers to entry is to prevent new firms from entering an industry or market.

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What are examples of barriers to entry?

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Examples include legal barriers, cost barriers, economies of scale, and marketing factors such as branding.

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What is a barrier to exit?

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A barrier to exit is the sunk costs that a firm will lose when leaving a market.

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What is a contestable market?

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A contestable market is one where market entry is free and there is likely to be a pool of firms waiting to enter if excessive profits are being made by existing firms.