The document analyzes various market structures, including perfect competition, monopoly, oligopoly, and monopsony, explaining their characteristics and impacts on businesses and consumers. Perfect competition features many buyers and sellers of homogeneous products with free entry and exit, while monopoly is characterized by a single seller with no close substitutes and high barriers to entry. Oligopoly involves few dominant firms that can set prices and may engage in collusion, and monopsony represents a market with a single buyer exerting significant control over price and purchasing conditions.

1.  Differentiating Market Structures
Analysis of Various Market Structures

2. Lesson Objectives:
•Explain the different market structures
•Know the diff. market structures
•And what are the key features of the
different market structures.

3. MARKET STRUCTURE
Market structures refer to the
organizational and competitive
characteristics of a market, which
influence how businesses operate, set
prices, and interact with consumers.
They are broadly categorized based on
the number of firms in the market, the
nature of the products or services
offered, the level of competition, and the
ease of entry and exit for new firms.

4. What are the different market structure in
economics?

5. Why market structure matters in economics?

6. 1 Perfect Competition
2 Monopolistic Competition
3 Oligopoly
4 Monopoly
Major Types of Market Structures
5 Monopsony (less common):

8. The Perfect Competition is a market structure where a
large number of buyers and sellers are present, and all are
engaged in the buying and selling of the homogeneous
products at a single price prevailing in the market.

9. In other words, perfect competition also referred to as a pure
competition, exists when there is no direct competition
between the rivals and all sell identically the same products
at a single price.

10. Key features of perfect competition
1.Large numbers of buyers and
sellers
2. Homogenous product
3. Free entry and exit
4. No transportation cost
5. Absence of government
and artificial restrictions

11. In perfect competition, the
buyers and sellers are
large enough, that no
individual can influence
the price and the output
of the industry.
Large numbers of buyers and sellers

12. An individual customer cannot
influence the price of the product,
as he is too small in relation to the
whole market. Similarly, a single
seller cannot influence the levels
of output, who is too small in
relation to the gamut of sellers
operating in the market.

13. Each competing firm offers the
homogeneous product, such that
no individual has a preference for a
particular seller over the others.
Thus, an increase in the price
would let the customer go to some
other supplier.
Homogenous product

14. Under the perfect competition, the firms
are free to enter or exit the industry. This
implies, If a firm suffers from a huge loss
due to the intense competition in the
industry, then it is free to leave that
industry and begin its business
operations in any of the industry, it
wants. Thus, there is no restriction on the
mobility of sellers.
Free entry and exit

15. There is an absence of transportation cost, i.e. incurred in carrying the
goods from one market to another. This is an essential condition of the
perfect competition since the homogeneous product should have the
same price across the market and if the transportation cost is added to
it, then the prices may differ.
No transportation cost

16. Under the perfect competition, both the buyers and sellers are free
to buy and sell the goods and services. This means any customer
can buy from any seller, and any seller can sell to any buyer. Thus,
no restriction is imposed on either party. Also, the prices are liable
to change freely as per the demand-supply conditions. In such a
situation, no big producer and the government can intervene and
control the demand, supply or price of the goods and services.
Absence of government and artificial restrictions

19. A market structure
characterized by a single
seller, selling a unique product
in the market. In a monopoly
market, the seller faces no
competition, as he is the sole
seller of goods with no close
substitute.

20. In a monopoly market, factors like
government license, ownership of
resources, copyright and patent and
high starting cost make an entity a
single seller of goods. All these factors
restrict the entry of other sellers in the
market. Monopolies also possess some
information that is not known to other
sellers.

21. Characteristics associated
with a monopoly market
make the single seller the
market controller as well as
the price maker. He enjoys
the power of setting the price
for his goods.

22. Although monopolist is a “price maker,” he is not
allowed to change any price he wants for utilities
like water and electricity. Specific government
agencies control their prices.

23. In the Philippines, MERALCO first submits a proposal for
an increase in electricity price to government agencies
(Energy Regulatory Board). Then the public sector is
informed of such increase and consultations are made
before implementing the increase.

24. 1. Single seller and a lot of purchasers
2. Unique goods
3. High barriers to entry
Key features of monopoly

25. Monopoly is a form of imperfect market because
the produce the goods and give the services is by
one single seller or monopolist. A price of goods
and service is also fully control by one seller.
Therefore, if the prices of the goods rise up,
consumers need to accept and pay higher prices
to buy the goods and service.
Single seller and a lot of purchasers

26. Monopoly market producing unique goods,
they do not have close substitutes in the
market place. Monopoly market is freedom
to change the cost of the goods or services.
Example of Windows company, they are
using their own idea to form their own goods
and service, which is Microsoft. There do not
have any other substitutes in this market.
Unique goods

27. A monopoly in the market is a strong
barrier to enter the new or others
industry. Monopoly does not face
competition because do not have
other competitor produce same
product to enter the market. It is limit
on others new industry and hard to
enter in this monopoly market.

29. Oligopoly is another form of
imperfect market structures. In
an oligopoly, there is more than
one seller but they remain to be
few so that a considerable
degree of market power is
exercised.

30. A cartel is a group of apparently
independent producers whose goal
is to increase their collective profits
by means of price fixing, limiting
supply, or other restrictive
practices.
Cartels typically control selling
prices, but some are organized to
force down the prices of
purchased inputs.

31. 1. Profit maximization
condition
2. Oligopolies are price
setters rather than price
takers
3. Barriers to entry are high
4. Product may either be

32. The profit maximization condition is a fundamental concept
in economics that determines the optimal output level for a
firm to maximize its profit.
General Condition:
A firm maximizes its profit where Marginal Revenue (MR)
equals Marginal Cost (MC):
MR=MCMR = MCMR=MCThis means that the firm should
produce up to the point where the revenue gained from
selling one more unit equals the cost of producing that unit.
Profit maximization condition

33. oligopolies are price setters rather than price takers because they operate in markets with few dominant
firms, each having significant market power. Unlike firms in perfect competition (which are price takers and
must accept the market price), oligopolistic firms can influence prices through strategic interactions with
competitors.
Why Are Oligopolies Price Setters?
1.Few Large Firms – Since only a small number of firms dominate the market, each firm’s pricing and output
decisions affect competitors.
2.Interdependence – Oligopolistic firms must consider rivals' reactions when setting prices; if one firm lowers
its price, others may follow to maintain market share.
3.Barriers to Entry – High barriers (e.g., economies of scale, branding, and legal restrictions) limit new firms
from entering, allowing existing firms to maintain pricing power.
4.Differentiated or Homogeneous Products – Some oligopolies sell differentiated products (e.g., car
brands) and compete through branding and innovation, while others sell homogeneous products (e.g., steel,
oil) and compete through pricing strategies.
5.Price Rigidity & Collusion – Firms often avoid frequent price changes to prevent price wars. Some
oligopolies engage in implicit or explicit collusion (e.g., forming cartels like OPEC) to set higher prices.
Oligopolies are price setters rather than price takers

34. Yes, in an oligopoly, barriers to entry are high, which prevents new firms from easily entering the market and
competing with established firms. These barriers help existing firms maintain their market power and pricing
control.
Types of Barriers to Entry in Oligopoly:
1.Economies of Scale – Large firms can produce at a lower average cost due to large-scale production, making
it difficult for new firms to compete.
2.High Startup Costs – Industries like automobile manufacturing, telecommunications, and pharmaceuticals
require massive capital investment.
3.Brand Loyalty & Advertising – Established firms invest heavily in marketing to create strong brand
recognition, making it harder for new entrants to attract customers.
4.Legal and Government Regulations – Licensing requirements, patents, and government policies (e.g., import
restrictions) limit new competition.
5.Control of Key Resources – Some oligopolies own or control essential resources (e.g., oil companies with
access to crude oil).
6.Predatory Pricing – Existing firms may lower prices temporarily to drive out potential competitors.
Impact of High Barriers to Entry:
•Maintains market power of existing firms.
•Reduces competition, leading to higher prices and lower consumer choice.
•Encourages long-term profits for firms in the oligopoly.

35. Product may either be homogenous or differentiated
in an oligopoly, products can be either homogeneous or differentiated, depending on the industry and
competition dynamics.
1. Homogeneous Products (Pure Oligopoly)
•Firms produce nearly identical products with little to no differentiation.
•Price competition is more intense since consumers see no major differences between brands.
•Examples:
• Oil and Gas (e.g., crude oil from ExxonMobil vs. Shell)
• Steel Industry (e.g., ArcelorMittal vs. Nippon Steel)
• Agricultural Commodities (e.g., wheat, corn)
2. Differentiated Products (Imperfect Oligopoly)
•Firms create unique features, branding, or perceived quality differences to attract customers.
•Non-price competition (e.g., advertising, innovation, brand image) plays a major role.
•Examples:
• Automobile Industry (e.g., Toyota vs. BMW – different designs, features, and brand value)
• Soft Drinks (e.g., Coca-Cola vs. Pepsi – branding and taste differentiation)
• Smartphones (e.g., Apple vs. Samsung – differences in ecosystem, software, and features)
Would you like a deeper comparison between homogeneous and differentiated oligopolies?

36. An oligopoly is a market structure characterized by a few
large firms dominating the industry. These firms have
significant market power and are interdependent,
meaning their decisions (on price, output, or strategy) are
influenced by competitors.

38. Monopsony is a market
structure wherein a single
buyer substantially controls
the market as the major
purchaser of goods and
services offered by many
would-be sellers.

39. The classic example of a monopsony is
a company coal town, where the coal
company acts the sole employer and
therefore the sole purchaser of labor
in the town. Now why should we care
about this? The monopsony power of
the coal company allows it to set wages
below the productivity of their
workers.
In other words, employers gain

40. Like a
monopoly
seller, a
monopsony
buyer is a
price maker

41. 1. Single Buyer
2. No Alternatives
3. Barriers to
entry
KEY FEATURES

42. First and foremost, a monopsony
is a monopsony because it is the
only buyer in the market. The
word monopsony actually
translates as "one buyer." As the
only buyer, a monopsony controls
the demand- side of the market
completely. If anyone wants to sell
the good, they must sell to the

43. A monopsony often acquires and
generally maintains single buyer
status due to restrictions on the entry
of other buyers into the market. The
key barriers to entry are much the
same as those that exist for
monopoly: government license or
franchise, resource ownership, and
patents and copyrights.

44. A monopsony is a market structure where there is only one
buyer
that has control over the demand side of a
particular industry or product.
Since there is only one buyer,
they set the prices or conditions for
purchasing goods, and sellers have no choice but to sell to them.
Examples of monopsony include:
1.A single company buying raw materials from miners.
2.The government as the sole buyer in public contracts.
3.A single company purchasing products from farmers.
In this setup, the monopsony has the greatest influence over
the market, resulting in limited alternatives for sellers.