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
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.
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)