Types of Market Structures
-All of the companies that sell a particular good or service are called a market -Examples: Automobile market, soda market, cable tv market -Ways to classify markets: how many businesses are involved, how much competition exists, how easy it is to enter the market, and the similarity of the products
Perfect competition -Subject only to the laws of supply and demand -Firms have no control over the price they charge -Number of firms is unlimited since there are no barriers to entry -All firms produce the same identical product
Perfect competition -Makes sense in theory, hard to find in reality -Examples: agricultural products -Market for rice, corn, wheat
Monopolistic competition -Each firm makes a product that is slightly different from the others -Many competing producers exist since barriers to entry are low -Each firm has slight control over the prices it charges
Monopolistic competition -Examples: Soap, shampoo, toothpaste, potato chips
Oligopoly -A few large firms control the market since barriers to entry are high -Firms have control over supply and prices -Interdependence is key: each firm’s decisions are affected by what other firms do
Oligopoly -Examples: Market for automobiles, soft drinks, airlines
Monopoly -This type of market only involves one specific firm -The firm has total control over price -Examples: Local electric, gas, and cable companies