Types of market structure1. Perfect competition

Different industries have different market structures. Different market characteristics determine the relations among sellers, and relations between sellers and buyers. The most important aspects of market structure are:1. the degree of concentration of sellers in the industry2. the degree of product differentiation3. the ease or difficulty with which new sellers can enter the industry.

Types of market structure

perfect competition – many producers of a single, unique good; (e.g. potatoes, onion)

monopoly - single producer of an unique good ;(e.g. Poczta Polska, energy, water suppliers)

monopolistic competition – many producers of slightly differentiated; goods (e.g. clothes, sweets, computers etc.)

oligopoly – few producers, with a single or only slightly differentiated; good (e.g. cigarettes, cell phones, satelite TV)

In general we classify market structures into four types:

It depends on how difficult it is to enter the market. That depends:

on control of the necessary resources or inputs, government regulations,

economies of scale, technological superiority. It also depends on how easy it is to differentiate

goods:◦ Soft drinks, economic textbooks, breakfast cereals can

readily be made into different varieties in the eyes and tastes of consumers.

◦ Red roses are less easy to differentiate

What determines market structure?

many buyers and sellers, identical (also known as homogeneous)

products, no barriers to either entry or exit, buyers and sellers have perfect information

about market, In perfect competition, all producers are

price takers, as they have to accept what the market says is the appropriate price and they cannot do anything to shift that price.

Perfectly competitive market

no individual firm can affect the market price

demand curve facing each firm is perfectly elastic

Demand curve facing a single firm

produce where MR = MC

Profit maximization

P = MR

Profit-maximizing level of output

Economic Profits > 0

Economic profit

Economic loss (AVC<P< ATC)

Loss if shut down

If price = minimum point on ATC curve, economic profit = 0.

Owners receive normal profit.

No incentive for firms to either enter or leave the market.

Break-even price

A perfectly competitive firm will produce at the level of output at which P = MC, as long as P > AVC.

Short-run supply curve

Firms enter if economic profits > 0◦ market supply increases◦ price declines◦ profit declines until economic profit equals zero

(and entry stops) Firms exit if economic losses occur

◦ market supply decreases◦ price rises◦ losses decline until economic profit equals zero

Long run

Long-run equilibrium

Perfectly competitive market is the only market structure, at which:

◦ P = minimum ATC

Film

Long-run equilibrium and economic efficiency

http://www.oswego.edu/~kane/eco101.htm http://www.econ.yale.edu/~gjh9/econ115b/s

lides11_4perpage.pdf http://facultate.regielive.ro/seminarii/

engleza/market_structer_competition_monopoly_and_oligopoly-41943.html

Bibliography: