Market Structures

Perfect Competition

A market with many buyers and sellers selling identical (homogeneous) products. Firms are price takers. Demand curve for an individual firm is perfectly elastic (horizontal) at the market price. Low/none barriers to entry (free entry and exit), no market power - price takers

Monopoly

A market with one dominant seller and no close substitutes. Firm is a price maker. Demand curve is downward sloping because the monopolist faces the market demand curve.

Many buyers, one seller, Unique product, no close substitutes, High barriers (very difficult to enter), Highest market power (firm is a price maker)

Monopolistic competition

A market with many firms, but products are differentiated (similar but not identical). Firms have some price control. Demand curve is downward sloping, but more elastic than a monopoly.

Many buyers and many sellers, Differentiated products (branding, quality, style, etc.), low / weak barriers to entry (free entry and exit), Some market power (limited control over price)

Oligopoly

A market with a few large firms that dominate the industry. Firms are interdependent (they react to each other’s decisions). Products can be homogeneous or differentiated. Demand curve is often modeled as a kinked demand curve (prices tend to be stable).

Many buyers, few dominant sellers, Barriers to Entry, High / significant barriers, High market power, but limited because competitors exist (firms are interdependent)