Market Structures
- Concept / Term
- Market Structures
- Branch
- Microeconomics
- Definition & Explanation
Market Structures
Market structures describe the competitive environment in which firms operate.
Feature Perfect Competition Monopoly Oligopoly Monopolistic Competition Number of Sellers Many One Few Many Product Type Identical (homogeneous) Unique Similar or Differentiated Differentiated Price Control None (price taker) Full (price maker) Some Some Barriers to Entry Free Blocked Difficult Relatively free Example Agricultural goods NRB (currency) Telecom (Nepal) Restaurants, clothing Monopoly
- A single seller dominates the market for a unique product with no close substitutes.
- The monopolist has significant market power and sets prices above marginal cost.
- Often results in deadweight loss, indicating market inefficiency and reduced social welfare.
- Governments may regulate natural monopolies (e.g., utilities) to prevent excessive pricing.
Oligopoly
- Characterized by a few large firms that dominate the market.
- Firms exhibit interdependent pricing: the actions of one firm significantly impact the others.
- Can lead to outcomes like price wars or, conversely, collusion (forming a cartel) to restrict output and raise prices.
- Concepts from game theory (e.g., Prisoner's Dilemma, Nash Equilibrium) are often used to analyze firm behavior.