markets

Perfect Competition

A market structure with many buyers and sellers, where no single buyer or seller can influence the market.

Characteristics of Perfect Competition

Homogeneous goods(identical)

, low barriers to entry and exit,

firms are price takers,

marginal revenue and average revenue equal price.

Supply curve of a firm is its marginal cost

Monopolistic Competition

A market structure with many buyers and sellers, slightly differentiated goods, and firms that are price makers.

Characteristics of Monopolistic Competition

Many buyers and sellers,

slightly differentiated goods,

price elastic demand,

and low barriers to entry.

Good information

Non - price competition

Firms are profit maximisers

Oligopoly Market

A market structure dominated by a few firms that have significant market power.

Characteristics of Oligopoly Market

High concentration ratio no more than seven firms

, differentiated goods,

price makers,

high barriers to entry,

and interdependence among firms.(firms don’t make decisions on their own)

Price rigidity (price does not change)

Non price competition

Monopoly

• it is the only produce

• Differentiated goods

• The demand curve us the firms average revenue

• Firms are price makers

• High barriers to entry

• Imperfect information

• Firms are profit maximisers

Perfect competition Short run to long run

Firms are price tackers, and can get supernormal profits, However as there is perfect information and low barriers to entry, new firms will enter the market shifting the supply curve to the dropping price and it will keep happening until no supernormal profits are left

Monopoly short run and long run

In the short run monopoly can earn supernormal profits because of its the only producer and there are high barriers to entry, in the long run these profit are maintained because of the high barriers to entry and imperfect information.

Monopolies has less incentive to increase output because it know it would push market price down.

Not allocative or technical efficient

Game theory

When both firms charge the lower price it is called Nash equilibrium

Domaint strategy is charging the lower price

Charging the high price is the best for both firms

Only works if they collude together, however it is not sustainable as firms have an incentive to cheat to gain also because of authorities