4a. Market structures

Market structures

• Perfect competition

• Monopolistic competition

• Oligopoly

• Monopoly

• Monopsony

• Contestable markets

Market structures

Market structures are the characteristics which determine firms’ behaviour. Economists single out a small number of key characteristics:

• The number of firms in the market and their relative size

• The number of firms which might enter the market

• The ease or difficulty with which these new entrants might come in

• The extent to which goods in the market are similar

• The extent to which all firms in the market share the same knowledge

• The extent to which the actions of one firm will affect another firm

• Are firms able to set their own price?

Barriers to entry

• High levels of brand recognition

• Some markets require a license to operate

• Existing firms use tactics to keep out new entrants

• The product involves complex and expensive machinery

• High start up costs and sunk costs e.g. advertising which can’t be recovered

• Some products aren’t available in some locations

• Larger firms benefit from economies of scale

• There is a contract which has high penalties for leaving the market