The Different Market Structures
Many sellers who are selling slightly different products. Many smaller businesses operate under monopolistic competition.
1. There must be many buyers and sellers (but fewer sellers than in a perfect competition market)
2. Have similar products, but still have enough difference to market them, and make consumers have a preference.
3. The product differentiation gives producers some control over the price, but not a lot.
4. Freedom of entering and exiting markets, just like in a perfect competition market.
5. Large amount of independent firms competing in the market.
- Easy to enter and leave the market
- More efficient than a monopoly
- The differentiation in products creates diversity in the market
- Competition in quality to appeal to customers
- Still less efficient than perfect competition
- Prices are high
- Could result in too much diversity (waste)
- Clothing stores
- Grocery stores
Market where there are a few markets, or a few monopolies that dominate the market.
- Few sellers many buyers
- Sells either standardized products (steel, or cotton), or differentiated products (cereal).
- The few firms have more control over the market and prices, but not as much as a monopoly.
- Less freedom to enter or leave the market
- Very competitive between the few firms
- High competition leads to innovation
- Price stability
- Easy price comparison for consumers
- Difficult for new firms to enter the market, and difficult for current firms to leave the market
- Uneven wealth distribution between the business
- Difficult for small businesses to survive
- Inefficient productivity
- Kellogg, General Mills, Post and Quaker controlling the cereal market
- Sony, Universal Music Group, Warner, and EMI controlling the music industry
- Apple and Samung dominating the Smart Phone market
When a single company owns the market. Usually a large corporation that has no competition.
Different types of Monopolies & characteristics
Natural- Happens when it is most efficient for production to have one producer.
- High fixed costs
- Likely to be expensive if not regulated
- Becomes more and more efficient as the amount of consumers increase
Geographic- One producer dominates the market in a particular region.
- Often exists in areas with little buyers, but still enough to make a profit
- Often a small business
Technology- Often the result of a patent from a company has the sole right to produce that product (assuming there are no substitutes that can compete with it)
- Usually temporary
- Little substitutes to that product being produced
Government- A government business that is the only one that is permitted to provide that product/service.
- High regulations
- Run/influenced by the government
- Not every efficient or competitive
Advantages of Monopolies
- Increased output leads to lowered production cost
- Highly profitable for the company, could be used for innovation
Disadvantages of Monopolies
- Little competition
- One company has ultimate control of production and prices
- Difficult for new businesses to enter the market
Natural- Utility companies
Government- U.S. postal office for 1st, and 3rd class mail, and sewage companies (the government only contracts with one in each area)
Technology- Microsoft Windows
Geographic- A single grocery store in a small town