Market structures

MONOPOLY

MONOPOLY

A monopoly is when one firm dominates the market.

They need at least 25% of market share to be a monopoly.

They can easily exploit customers by charging higher prices, therefore they are regulated.

A pure monopoly is when there is one firm in the market.

Barriers to entry are high because costs are high and there is a lot of competition.

New product development is not affected by competitors.

They can promote their products by advertising to inform and persuade customers to purchase it.

To increase sales revenue they need to increase market share.

They are also price leaders which means that they can charge high prices but this is restricted by government regulations.

DUOPOLY

This is when two firms dominate the market.

They have high barriers of entry because costs are high and there is a lot of competition (similar to monopolies).

They can also exploit customers by charging higher price.

They tend to compete on non-price competition such as promotion.

They are often accused of collusion which is when they make agreements between themselves which restricts competition, however this illegal.

OLIGOPOLY

Oligopolies is when a few firms dominate the market

Barriers to entry exist but are smaller than monopolies and duopolies.

They tend to compete on non-price competition such as promotion and collusion may still exist

Oligopolistic need to consider their competitors reactions when making decisions regarding pricing.

They are unlikely to reduce prices as a long term strategy.

What are the characteristics of an oligopoly?

They do not compete on prices in the long term

However, they may compete on pricing as a tactic in the short run.

They tend to spend heavily on new product development.

Branding is crucial and expensive Marketting budegets are available.

They must ensure that their products are accessible so that they can be successful.

MONOPOLISTIC COMPETITION

Monopolistic competition is where many firms in the market but they each have some form of product differentiation.

Barriers to entry are low so it is easy to enter the market but there is strong competition.

They will make a brand for themselves which can be done by building their reputation.

Examples include hairdressers and restaurants.