Difference between revisions of "Market structure"

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| [[oligopoly]] || a small number of sellers || The key feature is that sellers need to engage in ''strategic'' interaction, i.e., they need to anticipate the plans and moves of their small number of competitors. Firm need to engage in some practical [[game theory]]. || [[collusion]] in the form of [[cartel]]s and [[tacit collusion]] can cause an oligopoly to temporarily and partially behave like a monopoly with the accompanying social inefficiency. In practice, cartels tend to break down at least somewhat, so some of the benefits of competition also exist.<br>Oligopolies also have some some inefficiences absent in monopolies, such as the possibility of arms races in advertising or other arenas that do not generate net value for anybody but are intended to fight for market share.
 
| [[oligopoly]] || a small number of sellers || The key feature is that sellers need to engage in ''strategic'' interaction, i.e., they need to anticipate the plans and moves of their small number of competitors. Firm need to engage in some practical [[game theory]]. || [[collusion]] in the form of [[cartel]]s and [[tacit collusion]] can cause an oligopoly to temporarily and partially behave like a monopoly with the accompanying social inefficiency. In practice, cartels tend to break down at least somewhat, so some of the benefits of competition also exist.<br>Oligopolies also have some some inefficiences absent in monopolies, such as the possibility of arms races in advertising or other arenas that do not generate net value for anybody but are intended to fight for market share.
 
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| [[perfect competition]] || a large number of sellers, none of whom commands a significant share of the market. Also, the sellers are competing on price and there is no product differentiation. || Sellers have very little leeway in determining the price, which is taken as the [[market price]] (see [[convergence towards market price]]). However, each firm can decide the quantity it produces/supplies. See [[determination of quantity supplied by firm in perfectly competitive market]]. || considered to be socially efficient, at least in the short run, in the sense that it maximizes social surplus.
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| [[perfect competition]] || a large number of sellers, none of whom commands a significant share of the market. Also, the sellers are competing on price and there is no product differentiation. || Sellers have very little leeway in determining the price, which is taken as the [[market price]] (see [[convergence towards market price]]). However, each firm can decide the quantity it produces/supplies. See [[determination of quantity supplied by firm in perfectly competitive market in the short run]]. || considered to be socially efficient, at least in the short run, in the sense that it maximizes social surplus.
 
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| [[monopolistic competition]] || a large number of sellers, who compete both on price and on product differentiation. || Each seller has some [[market power]] but not a lot. The marginal revenue curve the seller faces is close to but not completely flat. |See [[determination of price and quantity supplied by firm in monopolistically copmetitive market]]. || in the short run, has some of the same inefficiencies as those associated with monopoly, though to a lesser degree.
 
| [[monopolistic competition]] || a large number of sellers, who compete both on price and on product differentiation. || Each seller has some [[market power]] but not a lot. The marginal revenue curve the seller faces is close to but not completely flat. |See [[determination of price and quantity supplied by firm in monopolistically copmetitive market]]. || in the short run, has some of the same inefficiencies as those associated with monopoly, though to a lesser degree.
 
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Revision as of 17:58, 15 April 2017

The market structure or market form for a good, service or commodity is a description of the nature of the market, particularly of the supplier (sellers/producers) and the manner in which they compete on price, quantity, and product differentiation.

The most common loose descriptions of market structure are given below:

Type of market structure Description based on number of sellers How sellers decide on price and quantity Social efficiency
monopoly a single seller The seller is free to determine both the price and the quantity supplied, which it typically does for profit maximization.
A monopoly may be a natural monopoly or a coercive monopoly.
Monopolies are checked by the danger of potential competition, particularly in contestable markets.
See determination of price and quantity supplied by monopolistic firm in the short run
Monopolies may be socially inefficient for the following reason: a seller may deliberately price a good higher than the level that maximizes social surplus so as to maximize the seller's share of social surplus. Explicitly, by pricing at a level strictly higher than marginal cost, the monopolist does not sell to those buyers whose reservation price is in between, leading to a deadweight loss.
If the seller is able to perform price discrimination, then the social surplus problem is mitigated, but the seller ends up capturing a larger share of the now enhanced social surplus.
oligopoly a small number of sellers The key feature is that sellers need to engage in strategic interaction, i.e., they need to anticipate the plans and moves of their small number of competitors. Firm need to engage in some practical game theory. collusion in the form of cartels and tacit collusion can cause an oligopoly to temporarily and partially behave like a monopoly with the accompanying social inefficiency. In practice, cartels tend to break down at least somewhat, so some of the benefits of competition also exist.
Oligopolies also have some some inefficiences absent in monopolies, such as the possibility of arms races in advertising or other arenas that do not generate net value for anybody but are intended to fight for market share.
perfect competition a large number of sellers, none of whom commands a significant share of the market. Also, the sellers are competing on price and there is no product differentiation. Sellers have very little leeway in determining the price, which is taken as the market price (see convergence towards market price). However, each firm can decide the quantity it produces/supplies. See determination of quantity supplied by firm in perfectly competitive market in the short run. considered to be socially efficient, at least in the short run, in the sense that it maximizes social surplus.
monopolistic competition a large number of sellers, who compete both on price and on product differentiation. Each seller has some market power but not a lot. The marginal revenue curve the seller faces is close to but not completely flat. |See determination of price and quantity supplied by firm in monopolistically copmetitive market. in the short run, has some of the same inefficiencies as those associated with monopoly, though to a lesser degree.

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