Different Market Structures
- The different market structures are summarized in the table below (Template A).
- Examples of different market structures
- Perfect competition – New York Stock Exchange
In the NY stock exchange there are many small firms that offer the same type of services (brokerage). The fees charged by these firms have very little variance. There is also very little government intervention on how to compete in the market, and as such, any person can enter and exit the market at any time.
- Monopoly – Energy distribution
Electricity distribution is a monopoly. Normally there is only one electric distribution company servicing a franchise area. This government intervenes such that there is almost zero capability to enter the market. The prices charged are such that the firm can acquire abnormal profits. If not regulated, monopolies can be ruinous to the economy.
- Monopolistic competition - Soda (beverage) industry
The soda industry operates under a monopolistic competition. Like firms operating in perfect competition, firms here can enter and exit the market easily. The product sold differs very little from competitors. However, there are very little players in the industry because of the requirement for operation (i.e. high capital costs). Players however, cannot charge abnormally high prices so the profitability output is relatively low.
- Oligopoly – Car manufacturing industry
Car manufacturers operate in an oligopoly. There are very few players in the industry and the entry into the market is very difficult. However because the products sold have significant differences, market participants can charge higher prices and make better margins.
- Marginal Analysis
- Perfect competition
In a perfect competition, the marginal return is equal to the price and equal to the average return of the firm. The marginal cost is upward sloping and intersects the average cost at the lowest possible point, which is the most efficient scale of production for the firm.
- Monopoly
In a monopoly, the supplier produces at less than optimal output. Optimal efficiency is reached when MC = AC and this is at around 5 units (price of about 40). However, the monopolist produces at a lower supply curve making its marginal revenues higher than its marginal revenues at the optimum social output.
- Monopolistic competition
In monopolistic competition, the optimum cost is not achieved by the structure and rests slightly above the point where MC intersects the quantity supplied. However, the marginal difference is not seen as too worrisome by the consumers because of the variety of offerings that are available for consumption.
- Oligopoly – Car manufacturing industry
In an oligopoly, the most efficient point is at the lowest possible average cost. However, the efficient levels are not achieved because the price is above the marginal cost of the products.
