4.1.5.1 - Market Structures

Market Structure =

The way a market is organised.

• Types distinguished by factors like no. of firms, barriers of entry…

Spectrum of Market Structures

Factors of a Pure Monopoly:

• Number of firms

• Size of firms

• ‘Price-making/taking’

• Degree of differentiation

• Barriers to entry

• Profit in long-run

• 1 firm

• Whole market

• Price-making

• Completely differentiated product

• High barriers to entry

• Supernormal profits

Factors of Perfect Competition:

• Number of firms

• Size of firms

• ‘Price-making/taking’

• Degree of differentiation

• Barriers to entry

• Profit in long-run

• Many firms

• Small firms

• Price-taking

• Homogeneous products

• No barriers to entry

• Normal profits

Types of Barriers to Entry

E-BLIPS
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Economies of Scale - Large firms have lower avg costs so can charge lower prices → new firms cannot be price competitive

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Brand Loyalty - tendency for consumers to buy from a known brand even when prices are higher or quality of product is worse

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Legal Barriers - Laws making it more difficult to enter market, e.g. license to distill alcohol

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Intimidation - Incumbent firms conducting antisocial behaviour, legal action, vandalism

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Predatory pricing - Temporarily setting prices below cost

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Setup/exit costs