Market Structures

Monopolistic Competition

Characteristics

  • There is a large market consisting of a large amount of buyers and sellers
  • Each company is completely independent from one another.
  • The consumers are knowledgeable about the choices they are making and the competition
  • There are little or no barriers preventing entrance or exit to the market
  • There is a focus on product differentiation (Cheese burger vs Vegan Burger)
  • No one company has complete control over prices

Advantages

  • The market has little or not barriers to entry allowing new companies to compete
  • The differentiation in products creates diversity, choice, and utility
  • The market is still more efficient than monopolies
  • Promotes competition

Disadvantages

  • Differentiation creates additional and unnecessary waste (excess packaging, advertising, etc.)
  • Still has higher prices than a perfectly competitive market

Examples

  • Restaurants
  • Hotels

Oligopoly

Characteristics

  • High start-up costs
  • Few sellers many buyers
  • Standardized OR differentiated products
  • High control of prices
  • Little freedom to enter or exit the market

Advantages

  • Helps lower the average cost of the production of goods
  • Creates a large amount of profit for the companies which can then be used for the  innovation and development of new products and processes (technological advancement)
  • Prices are set competitively against one another, meaning low prices for consumers

Disadvantages

  • Companies can (though not often) set prices extremely high
  • Very little chance for new companies to enter the market, creating little new competition
  • Little competition means there is little chance of improvement on the current products

Examples

  • Banking
  • Supermarkets
  • Airlines
  • Soft-drinks

The Monopolies

An Overview

Characteristics

  • Only one seller
  • Total control of prices
  • Restricted and regulated market creates a barrier to entry for other companies
  • A unique product or service

Advantages

  • Avoids duplication and hence a waste of resources
  • The large amount of profits created in a monopoly can be used to develop new products or processes (technological advancement)
  • Companies can afford to have the latest technology and machinery being as efficient as possible

Disadvantages

  • Restrict output on the market
  • Prices are set much higher than in any other competitive market
  • Restrict choice for the consumer
  • Restrict consumer sovereignty
  • Less employment in the market. Higher prices lead to lower output and less need to employ. Also no other new companies can emerge to create new employment opportunities.

Examples

  • Monsanto
  • Microsoft
  • Sports
  • Standard Oil

The Natural Monopoly

Characteristics

  • A monopoly where the costs of production are lowest with only one producer

Examples

  • Railways
  • Water companies
  • Power companies

The Geographic Monopoly

Characteristics

  • A monopoly were either the government owns and runs the business or authorizes only one producer

Examples


The Technological Monopoly

Characteristics

  • A monopoly when a company controls a manufacturing method, invention, or type of technology.

Examples

  • Polaroid camera (formerly)
  • Computer software (formerly)

The Government Monopoly

Characteristics

  • A monopoly that occurs when there are no other producers within a certain region.

Examples

  • Postal Service

Additional Help and Overviews

Sources

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