Market Structures


Monopolistic Competition

    Monopolistic competition is defined as the structure of a market where there are sellers that offer similar products to the standardized products in the market.

    Characteristics

    1. Many sellers and many buyers

    2. Similar but differentiated products

    3. Limited control of prices

    4. Freedom to enter or exit the market

    Advantages

    1. It is fairly simple to enter the market and therefore it is easy for more producers to compete.

    2. Monopolistic competition is more efficient than a monopoly.

    3. Offers diversity in areas.

    Disadvantages

    1. Can be seen as wasteful because of the fact that utility can generate unneeded waste.

    2.  Can be inefficient because of the fact that the price is above marginal cost.

    Examples

    Coca Cola vs. Pepsi

    Wendy's vs. McDonald's


Monopoly

    A monopoly can most often be defined as he market in which only one seller has full control of a product and there are no substitutes for that product.

    Characteristics

    1.  Only one seller in the market.

    2. No competition between producers.

    3. Many Buyers in the market.

    4. Extremely profitable for the producer

    5. Sellers control the price of the good/product

    Advantages

    1. Monopolies are beneficial because they are not wasteful of resources.

    2. Scaled economy due to the fact that their is only one supplier of that product in the market.

    3. Profit from monopolies can be used for research and development purposes.

    Disadvantages

    1. Not as much consumer sovereignty.

    2. Service can be poor in a monopoly.

    3. Consumer can be charged excessively because of the fact that there is no other location to buy the product in the area.

    Types of Monopolies

    1. A natural monopoly: A natural monopoly is defined as a situation where the cost of production that is required for the product is less only when the firm provides output. An example of this type of monopoly would be a water company.

    2. Government Monopoly: A government monopoly is defined as a monopoly in which the government runs and owns the business. An example of this type of monopoly would be the Postal Office.

    3. Technological Monopoly: This type of monopoly is in existence because of the invention of a technology. An example would have to be Polaroid

    4. Geographic Monopoly: This type of monopoly is one that exists because there are no other sellers in that region. An example would have to be Professional Sports.


Oligopoly

An oligopoly is the opposite of a monopoly and is defined as the idea where only a few sellers offer similar products.

Characteristics

1.  An industry dominated by a small group of large firms.

2. Firms have almost identical products.

3. Barriers to enter.

Advantages

1.  Large firms have power over the market.

2. Companies are able to decide the price of the product.

3. Prices are usually stable in an oligopoly.

4. Easy price comparison between companies in an area.

Disadvantages

1.  Some companies cannot become more successful than the big market players.

2. Small businesses are unable to establish themselves because of big businesses

Examples

1. Gas

2. Cell Phone Towers

3. Television providers  

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