AP Economics

Mr. Bernstein

Module 57: Introduction to Market Structure

November 4, 2014

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AP EconomicsMr. Bernstein

Four Principle Types of Market Structures• Perfect Competition• Monopoly• Oligopoly• Monopolistic Competition

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AP EconomicsMr. Bernstein

Defining Market Structures• How Many Firms? What Type of Product?

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AP EconomicsMr. Bernstein

Perfect Competition• Rare in real world• But provides good benchmark for our studies• Firms are price-takers• Each firm’s market share is small• Products offered are identical• In reality, firms strive to either gain size and clout or

differentiate products to avoid becoming price-takers

• Free entry and exit• Quick entry and exit insures adjustment to profits or

losses

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AP EconomicsMr. Bernstein

Monopoly• Single producer• No good substitute products exist• Has one or more barriers to entry• Ownership of essential resource (Major League sports)• Economies of scale (Public Utilities)• Technological superiority (MSFT Windows)• Government created barriers (PetroChina; patents)

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AP EconomicsMr. Bernstein

Oligopoly• Small number of large firms producing most of

market output (high market share)• Barriers to entry• Strategic Behavior and Mutual Interdependence

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AP EconomicsMr. Bernstein

Monopolistic Competition• Between Perfect Competition and Oligopoly• Many firms• Differentiated Products• No barriers to entry/exit