This document introduces market structure models and their characteristics. It discusses the four main market structures: perfect competition, monopolistic competition, oligopoly and monopoly. It outlines their key characteristics such as the number and size of firms, nature of products, barriers to entry and examples. It then examines how firm behavior is affected differently under each market structure in terms of pricing, costs, branding and profitability. The document emphasizes that more competitive market structures are generally more efficient for allocating resources.

1. Introduction toIntroduction to
market structuremarket structure
modelsmodels

2. Learning outcomes
Understand the
characteristics
of market
structure
Understand
how firm
behaviour is
affected by
market
Define the four
market structures
Explain and give
examples of
barriers to entry

3. Market structureMarket structure
The markets in which firms operate differ in
the degree of competition and in their structure
We can think of there being a spectrum of
competition, from very competitive to a total
absence of competition.
Along this spectrum we can identify FOUR
market structures
Perfect Monopolistic Oligopoly Monopoly
competition competition

4. Market structure characteristicsMarket structure characteristics
Characteristic Perfect
competition
Monopolistic
competition
Oligopoly Monopoly
No. / size of
firms
Nature of
product
Barriers to
entry
Examples

5. Characteristic Perfect
competition
Monopolistic
competition
Oligopoly Monopoly
No. / size of
firms
Large no. of
small firms
Large no. of
small firms
Small no. of
large firms
One (theory)
> 25% mkt
share (CC)
Nature of
product
Barriers to
entry
Examples
Market structure characteristicsMarket structure characteristics

6. Characteristic Perfect
competition
Monopolistic
competition
Oligopoly Monopoly
No. / size of
firms
Large no. of
small firms
Large no. of
small firms
Small no. of
large firms
One (theory)
> 25% mkt
share (CC)
Nature of
product
Identical Differentiated Differentiated No
substitutes
Barriers to
entry
Examples
Market structure characteristicsMarket structure characteristics

7. Characteristic Perfect
competition
Monopolistic
competition
Oligopoly Monopoly
No. / size of
firms
Large no. of
small firms
Large no. of
small firms
Small no. of
large firms
One (theory)
> 25% mkt
share (CC)
Nature of
product
Identical Differentiated Differentiated No
substitutes
Barriers to
entry
None None High High
Examples Farming
FOREX
Road haulage? Road haulage?
Air transport
(EU)
Air transport
(domestic)
Bus market
(national)
Railtrack
TOCs
(regional /
route
franchises)
London Buses
Bus market
(regional /
Market structure characteristicsMarket structure characteristics

8. Task 1
Use pp129 – 130 and p34 to identify
and explain 7 barriers to entry which
might prevent potential competition
entering an industry.
If possible, give a transport example
of each barrier.

9. Implications for behaviourImplications for behaviour
Perfect
competition
Monopolistic
competition
Oligopoly Monopoly

10. Perfect
competition
Monopolistic
competition
Oligopoly Monopoly
Price takers
Must be cost
efficient
No scope for
branding or
marketing
Low profit
margins
Implications for behaviourImplications for behaviour

11. Perfect
competition
Monopolistic
competition
Oligopoly Monopoly
Price takers
Must be cost
efficient
No scope for
branding or
marketing
Low profit
margins
Some control
over price
Must be cost
efficient in
absence of unique
selling point
Gains from
product
differentiation
Low profit
margins
Implications for behaviourImplications for behaviour

12. Perfect
competition
Monopolistic
competition
Oligopoly Monopoly
Price takers
Must be cost
efficient
No scope for
branding or
marketing
Low profit
margins
Some control
over price
Must be cost
efficient in
absence of unique
selling point
Gains from
product
differentiation
Low profit
margins
Little
competition on
price
High overheads
High profit
margins
Heavy branding,
promotion and
differentiation
Possibility of
collusion
Implications for behaviourImplications for behaviour

13. Perfect
competition
Monopolistic
competition
Oligopoly Monopoly
Price takers
Must be cost
efficient
No scope for
branding or
marketing
Low profit
margins
Some control
over price
Must be cost
efficient in
absence of unique
selling point
Gains from
product
differentiation
Low profit
margins
Little
competition on
price
High overheads
High profit
margins
Heavy branding,
promotion and
differentiation
Possibility of
collusion
Price maker
High profit
margins
Degree of cost
inefficiency
through ‘slack’
Potential to
‘abuse’ market
power
Anti-
competitive
behaviour
Implications for behaviourImplications for behaviour

14. Efficient market structures
An efficient market structure must
be
allocatively efficient (P=MC)
productively efficient (min AC)

15. An efficient marketAn efficient market
Price
Price
Market Typical Firm
Quantity Quantity
D
S
P
P=AR=MR
MC
AC

16. Measuring degree of competition
Concentration ratios
market share accounted for by
largest 3, 5 or 7 firms

17. Task 2
Answer the following questions from
the specimen paper
(a) (i)
(a) (ii)
(b) (i)
(b) (ii)