Market Structures (EPF Unit 1.3 Notes)

Perfect Competition

• Simplest market structure

  • Large number of firms producing goods

• Four conditions for it to exist

  1. Many buyers and sellers

  2. Selling identical products

  3. Buyers and sellers are well informed

  4. Sellers can enter and exit the market freely

Direct and Indirect Competition

• Direct: Two companies producing similar products

• Indirect: Multiple companies targeting same customer group

Monopoly Basics

• When barriers prevent firms from entering a market

  • One seller, which disrupts competition

• Different market conditions can create different monopolies

  • An industry with high startup cost which are reduced with additional units produced.

  • Natural Monopolies: When it is more efficient to have one provider

  • Government monopoly: Created by the government

Oligopoly Basics

• Market dominated by a few firms

• Forms with significant barriers to entry

  • Firms can cooperate to limit competition

  • Making money with price fixing (agreeing on setting certain prices; typically higher than normal)

• Cartels can form, organizing to coordinate prices and production which gives significant control over a market.

Monopolistic Competition

• Many companies compete to sell similar products

  • Each firm has a monopoly over its products

• Four conditions to form

  1. Many firms

  2. Few artificial barriers to entry into the market

  3. Slight control over price

  4. Differential products

Regulation and Deregulation

• Most governments exert some regulation

• Antitrust laws: prevents monopolies

  • Not perfect, enforced through court and some companies have attempted to get around these laws

• Some regulations put in place for consumer safety or environmental protection

• Deregulation: Reducing economic regulation

  • Occurs for a variety of reasons: Increased number of producers, decreased demand for a good or service, etc.