Types of Market Structures

Introduction to Market Structures

A market structure refers to the characteristics of a market that influence how firms behave and compete. Economists typically categorize markets into four primary types:

1. Perfect Competition
2. Monopoly
3. Monopolistic Competition
4. Oligopoly

Each structure varies based on the number of firms, the nature of the product, ease of entry, and pricing power.

Key Characteristics

Structure # of Firms Product Type Barriers to Entry Price Control Perfect Competition Many Identical None None (Price Taker) Monopoly One Unique Very High Complete Monopolistic Competition Many Slightly Differentiated Low Some Oligopoly Few Identical or Differentiated High Interdependent

Real-World Examples

• Perfect Competition: Agricultural markets (e.g. wheat)
• Monopoly: Local utilities (e.g. water supply)
• Monopolistic Competition: Restaurants, clothing brands
• Oligopoly: Airlines, smartphone manufacturers

Why This Matters

Understanding market structure is crucial for analyzing:

• Pricing power
• Firm strategy
• Consumer choice
• Efficiency and welfare outcomes

Key Takeaways

• Market structures shape business behavior
• More competition usually means lower prices and higher efficiency
• Less competition often leads to higher profits — and potential inefficiencies