AP Economics Mr. Bernstein Module 57: Introduction to Market Structure November 4, 2014

AP Economics Mr. Bernstein Four Principle Types of Market Structures Perfect Competition Monopoly Oligopoly Monopolistic Competition 2

AP Economics Mr. Bernstein Defining Market Structures How Many Firms? What Type of Product? 3

AP Economics Mr. Bernstein Perfect Competition Rare in real world But provides good benchmark for our studies Firms are price-takers Each firm’s market share is small Products offered are identical In reality, firms strive to either gain size and clout or differentiate products to avoid becoming price-takers Free entry and exit Quick entry and exit insures adjustment to profits or losses 4

AP Economics Mr. Bernstein Monopoly Single producer No good substitute products exist Has one or more barriers to entry Ownership of essential resource (Major League sports) Economies of scale (Public Utilities) Technological superiority (MSFT Windows) Government created barriers (PetroChina; patents) 5

AP Economics Mr. Bernstein Oligopoly Small number of large firms producing most of market output (high market share) Barriers to entry Strategic Behavior and Mutual Interdependence 6

AP Economics Mr. Bernstein Monopolistic Competition Between Perfect Competition and Oligopoly Many firms Differentiated Products No barriers to entry/exit 7