OBJECTIVES:

1.Define Market Structure

2.Identify the different types of market structure.
3.Identify the characteristics of each type of
market structure.
4.Distinguish the market structures based on their
characteristics.
5.Appreciate the importance of market structures
in the economy.
Market structure refers to the
competitive environment in
which buyers and sellers
operate.
The degree of competition, it
is rivalry among various sellers
in the market, differs from the
characteristics of the market.
It depends on the number
and size of buyers and
sellers, type of product
bought and sold, degree of
mobility of resources, entry
and exit of firms, and pricing
powers.
There are varying degrees of competition in the
market depending on the following factors:
Number and size of buyers and sellers.
Similarity or type of product bought and sold.
Degree of mobility of resources.
Entry and exit of firms and input owners.
Degree of knowledge of economic agents
regarding prices, costs, demand, and supply
 TWO TYPES OF MARKET
STRUCTURE
1. Perfect Market
2. Imperfect Market
1. Perfect market or pure competition
A perfectly competitive market is a
hypothetical market where competition is at
its greatest possible level. Many firms
competing in the market, each of them is
selling a product that is indistinguishable
from other products.
Characteristics of Perfect Market or Pure
Competition:
1. There are so many buyers and sellers that
each has a negligible impact on market price.
The change in the output of a single firm will
not noticeably affect the market price of the
good. Likewise, there is no single buyer who
can influence the price since the consumer
purchases only a small amount or in retail.
2. The products sold in the market are
homogenous. It means that the products
are highly similar in such a way consumers
have no preference to buy from the other
seller. The goods offered for sale are all
the same.
For example, the salt is the same rock
salt that the other store sells. Most of the
products sell in perfect competition are
agricultural products like rice, corn, or
fruits.
3. Perfect mobility of
resources refers to the easy
transfer of resources in
terms of use or terms of
geographical mobility.
4. There is perfect knowledge of
economic agents of market
conditions such as present and
future prices, costs, and
economic opportunities.
5. The firms can easily enter or exit
from the market because there are no
significant barriers or special costs to
discourage the new entrants. Likewise,
there are no barriers that will prevent
sellers from exiting the market. Hence,
firms need less capital to enter in the
market.
6. Market price and quantity
of output are determined
exclusively by forces of
demand and supply. The
seller is a price taker and
must follow the market price
2. IMPERFECT
MARKET
is a competitive market
situation where there are
many sellers, but they are
selling heterogenous
(dissimilar) goods.
An imperfect market is one in which
individual buyers and sellers can
influence prices and production,
where there is no full disclosure of
information about products and
prices, and where there are high
barriers to entry or exit in the
market.
A. Monopolistic Competition
Monopolistic competition is characterized as
an industry in which many firms offer products
or services that are similar, but not exactly
alike – differentiated in nature. As consumers,
we want to have varieties of products to choose
from. We have the choice to buy the product in
terms of the quality, features, packaging, and
even because of its brand name.
Characteristics of
Monopolistic Competition:
1. It is a blend of perfect competition
and monopoly. Just like perfect
competition, there are many similar
products available in the market and
there are many large companies which
they can influence the price by creating
2. The firms sell differentiated products
which are highly substitutable but are
not perfect substitutes. Products are not
identical, but very similar, so companies
use product differentiation.
Let say, shampoo products, there are
many variants of shampoo to choose
from like for hair straightening, anti-
dandruff, smooth and silky hair.
 Product differentiation is a marketing
strategy that strives to distinguish a
company's products or services from the
competition (Kopp, 2020). The product
differentiation may be in color, packaging,
store location, store design, store
decorations, delivery, service, or anything to
make the product stand out. Brand identity
is one of the selling points of the firms in a
monopolistic competition.
3. There are free entry and exit in the market
that enables the existence of many sellers.
4. The firms are engaged in non-price
competition. This involves the advertising of
a product’s appearance, quality, or design
which takes to shift the demand curve to the
right without sacrificing the prices.
5. It is similar to a
monopoly in which the
firm can determine the
quantity of the products
and has some price
control.
• McDonald and Burger King,
which both sell slightly
different burgers
•Nike and Adidas, which both
sell running shoes, but are
different in some ways.
B. Monopoly
A monopoly exists when a
company and its product offerings
dominate a sector or industry. The
existence of a monopoly depends on
how easy it is for consumers to
substitute the products for those of
other sellers.
Characteristics of Monopoly:
1. There is only one seller in the
market, meaning the company
becomes the same as the industry it
serves. A single seller has control of
the entire supply of raw materials
like MERALCO, Manila Water, and
Maynilad.
2. The producer will enjoy
economies of scale, which are
saved from a large range of
outputs.
Economies of scale are cost
advantages reaped by companies
when production becomes efficient.
Companies can achieve economies of
scale by increasing production and
lowering costs (Kenton, 2020).
3. The company that operates
the monopoly decides the
price of the product that it
will sell without any
competition keeping their
prices in check. As a result,
monopolies can raise prices.
4. Competitors are not able to
enter the market, and the
monopoly can easily prevent
competition by developing their
dominant position in an industry.
The reason could be due to legal
barriers like government
C. Oligopoly
Oligopoly is a market structure with a
few large firms, none of which can keep the
others from having significant influence.
Few sellers control most of the production
of a good or service and setting prices.
Examples: the automobile industry, the steel
industry, aircraft manufacturing industry, etc.
Characteristics of Oligopoly:
1. There are very few sellers that
control the entire market. Most
of these are in the oil industry,
transportation, and
telecommunication.
2. Products may be differentiated or
identical, but they are usually
standardized. Sellers offer a
differentiated and identical product
such as petroleum which have
different variants.
In an oligopoly, firms often
compete on non-price competition.
This makes advertising and the
3. In an oligopoly, there must be
some barriers to entry to enable
firms to gain a significant market
share. These barriers to entry may
include brand loyalty or economies
of scale. However, barriers to entry
are less than monopoly.
4. The actions of one firm
affect all producers.
Companies will be affected by
how other firms set price and
output.
5. There are different possible ways that
firms will compete and behave this will
depend upon
(a) the objectives of the firms, e.g.
profit maximization or sales
maximization,
(b) the degree of contestability; e.g.
barriers to entry, and
6. There are different possible
outcomes in an oligopoly market:
(a) stable prices – firms concentrate
on non-price competition,
(b) price wars (competitive
oligopoly), and
(c) collusion- leading to higher
prices.
Collusion is an agreement to act together
or cooperatively. It is illegal, but tacit
collusion may be hard to determine. For
collusion to be effective, there needs to be
barriers to entry. A cartel is a formal
collusive agreement.
For example, the Organization of
Petroleum Exporting Countries (OPEC) is a
cartel seeking to control the price of oil.