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1. Describe the different market structures and provide a concrete example of each.

Types of Market Structures:

Monopolistic competition, a type of imperfect competition such that many producers sell
products or services that are differentiated from one another (e.g. by branding or quality) and
hence are not perfect substitutes. In monopolistic competition, a firm takes the prices charged by
its rivals as given and ignores the impact of its own prices on the prices of other firms. Textbook
examples of industries with market structures similar to monopolistic competition

include restaurants, cereal, clothing, shoes, and service industries in large cities.
Oligopoly, in which a market is run by a small number of firms that together control the
majority of the market share. For example, there are now only a small number of manufacturers
of civil passenger aircraft, though Brazil (Embraer) and Canada (Bombardier) have participated in
the small passenger aircraft market sector.

Duopoly, a special case of an oligopoly with two firms. The most commonly cited
duopoly is that between Visa and Mastercard, who between them control a large proportion
of the electronic payment processing market. In 2000 they were the defendants in a US

Department of Justice antitrust lawsuit.


Monopsony, when there is only a single buyer in a market. Examples include the military

industry, space industry, and the government-funded and government-regulated prison industry.
Oligopsony, a market where many sellers can be present but meet only a few buyers. One
example of an oligopsony in the world economy is cocoa, where three firms (Cargill, Archer
Daniels Midland, and Barry Callebaut) buy the vast majority of world cocoa bean production,

mostly from small farmers in third-world countries.


Monopoly, where there is only one provider of a product or service. If for example the
industry is large enough to support one company of minimum efficient scale then other
companies entering the industry will operate at a size that is less than MES, meaning that these
companies cannot produce at an average cost that is competitive with the dominant company.

Natural monopoly, a monopoly in which economies of scale cause efficiency to


increase continuously with the size of the firm. A firm is a natural monopoly if it is able to
serve the entire market demand at a lower cost than any combination of two or more smaller,
more specialized firms. This tends to be the case in industries where capital
costs predominate, creating economies of scalethat are large in relation to the size of the
market, and hence creating highbarriers to entry; examples include public utilities such

as water servicesand electricity


Perfect competition, a theoretical market structure that features no barriers to entry, an
unlimited number of producers and consumers, and a perfectly elastic demand curve. An
example is that of a large auction of identical goods with all potential buyers and sellers present.
By design, a stock exchange resembles this, not as a complete description (for no markets may

satisfy all requirements of the model) but as an approximation.


2. Illustrate through graphic organizer the different market structures

Quick Reference to Basic Market Structures

Market

Seller

Seller

Buyer

Buyer

Structur

Entry

Numbe

Entry

Numbe

Barriers

Barriers

Perfect

No

Many

No

Many

No

Many

No

Many

Oligopsony

No

Many

Yes

Few

Monopoly

Yes

One

No

Many

Competition

Monopolisti
c
competition

3. How competition influences market behavior affects the way the market will function in the long run.
Competitive behaviour is the degree to which individual firms compete against each other to
gain higher market shares, earn higher profits, etc. It is also the manner in which firms compete
against each other (advertising, pricing policies, customer service, etc.)
In understanding market behavior, we often speak of the competitive spectrum that is a continuum
from the competitive ideal with many firms in a given industry and a high degree of competition to
monopoly behavior where a single firm dominates an industry and competitive behavior does not
exist.
This spectrum is defined based on three primary market characteristics:
The Number of Firms in an Industry
Barriers to Market Entry (or Exit)
The Type of Good offered for sale
These characteristics along with different market structures are summarized in the following table:

At one end of the spectrum, we have a competitive ideal that represents a standard by which
we evaluate all other types of competitive behavior. At the other end, monopoly represents an

absolute lack of competition such that the single firm in the industry has a high degree of price-making
ability.