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Competitive and Monoploy Markets

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5 views

Competitive and Monoploy Markets

Uploaded by

bs.dabbara
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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An Introduction To Competitive & Monopoly Markets

 Each firm operates in a specific market


 The conditions in different markets can vary significantly & are determined by
the market structure in which the firm operates
 There are a range of market structures, however your syllabus only requires you to
know the characteristics of two - competitive markets & monopolies
 Competitive markets are those with an extremely high degree of competition
 A monopoly is a market structure in which one firm dominates the market &
has significant market power

The six characteristics which determine the type of market structure a firm operates in -
competitive or monopoly

 The answers to the questions above determine the type of market structure in
which a firm is operating in
o If a firm is selling a unique product (e.g.hand made car) it is likely operating
in a monopoly market & setting high prices
Characteristics of Competitive Markets
 The characteristics of a competitive market are as follows

1. There are many buyers and sellers: due to the number of market participants sellers
are price takers
2. There are no barriers to entry & exit from the industry: firms can start-up or
leave the industry with relative ease which increases the level of competition
3. Buyers & sellers possess perfect knowledge of prices: this assumption presupposes
perfect information e.g if one seller lowers their price then all buyers will know about
it
4. The products are homogenous: this means firms are unable to build brand loyalty
as perfect substitutes exist & any price changes will result in losing customers

Advantages & Disadvantages of Competitive Markets

Advantages Disadvantages

 Lower prices: competition causes firms to  Worse quality: in a bid to lower prices,
lower prices for consumers in an attempt to product quality may actually deteriorate
gain market share over time
 Better quality: firms innovate &  Too much choice: consumers may be
continuously seek to improve their quality overwhelmed & not explore the full range
of their goods/services in order to become of market offerings, instead sticking to
recognised in a crowded market what they know
 More choice: more sellers equals more  Worker welfare: the greater the
choice for consumers competition the greater the need to cut
costs, often resulting in low wages & poor
working environments

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