THE MARKET STRUCTURE

BY: Mr. Gayares

Perfect Competition

• Pure competition• Large number of

firms all producing essentially the same product

• Assumes that firms and buyers are “price-takers”

4 conditions for perfect competition

• Many buyers and sellers participate in the market

• Sellers offer identical products

• Buyers and sellers are well-informed about products (perfect knowledge)

• Sellers are able to enter and exit the market freely

TERMS

• Barriers to entry- any factor that makes it difficult to a new firm to enter a market

• Start-up costs-the expenses a firm must pay before it can begin to produce and sell goods

• Commodity- a product is the same no matter who produces it

• Competition makes the market efficient

Perfect Competition summaryNUMBER OF FIRMS: MANY

VARIETY OF GOODS: NONE

BARRIERS TO ENTRY: NONE

CONTROL OVER PRICES: NO CONTROLNo contro

l

MONOPOLY

MONOPOLY

• A MARKET DOMINATED BY A SINGLE SELLER

• Can you cite some example where there is only one seller? What are the advantages and disadvantages?

Monopoly FeaturesNUMBER OF FIRMS: NONE

VARIETY OF GOODS: NONE

BARRIERS TO ENTRY: COMPLETE

CONTROL OVER PRICES: NO CONTROLCOMPLETE

control

Advantages of monopoly

• Assurance of supply• Natural monopoly- a market that runs most

efficiently when one large firm supplies all of the product

• Ex: dam, electric company, television

Monopolist’s dilemma

• Can you tell what it is?• Price discrimination• Discounts• rebates