No.

of firms and buyers

Perfectly Competitive Large number of firms and buyers. No one can influence the price of the product. Significance: Price is determined by the market demand and supply

Nature of Product

Identical. Buyers will not show preference for the product of one firm. Significance: Contributes to high value of price elasticity of demand for a firms good.

MARKET STRUCTURES Monopoly Oligopoly One producer. Few large firms. The demand curve for the Significance: Make them firm is also the industrys. mutually interdependent. Significance: If it wants to Each firms action will sell at a higher price, then influence the profits of all the output must be reduced. the other firms. A firm If it wants to increase cannot ignore the actions of output, it must lower the any other firm in the price. A price setter. industry because of the likely adverse effect competitors may pose. No close substitute. Homogeneous or differentiated. Significance: CED and PED Homogeneous: firm has for the firms output is very control over its pricing low. policy. Differentiated: less fear of immediate reaction from rivals because rivals may perceive the change in price to be due to modifications made to the product.

Monopolistic Competitive Large number of firms and buyers.

Differentiated. Significance: each firm has some degree of control over its own price. Yet, since there are many close substitutes, each firm has little market power.

Knowledge of product/mar ket

Level of barrier to entry

Perfect. Every seller knows the prices his rival charge, etc.; buyers have complete information about each and every sellers price. Significance: Demand for a firms good is perfectly elastic. None. FOPs are perfectly mobile. No one firm has a cost advantage over another firm. Significance: can only make normal profits in the LR.

Imperfect. Consumers are not fully aware of the costs and production of the product. And/Or Sellers and buyers have incomplete information regarding production methods and prices.

Very high. Significance: Able to retain its supernormal profits even in the long run.

No/low. FOPs are relatively mobile. Retaliation by rivals unlikely, each firm can determine its price-output policy without considering the possible

Most unique characteristi c

Price taker. Each firm has no control over the market price which is determined by the market demand and supply. The demand for each firms product is perfectly elastic. The demand curve is a horizontal straight line, where every unit of output will be sold at the market price. The sale of an additional unit must add exactly the same amt to TR as any other unit. Hence, P=AR=MR=MC

Very high barriers to entry. 1) Large MES in relation to market demand; can reap substantial IEOS 2) Natural barriers 3) Artificial: product differentiation 4) Institutional: legal protection Deter potential firms from entering the industry. Protected in the long run, ensure complete market power and supernormal profits.

Mutual interdependence. Each firms action will influence the profits of all the other firms. A firm cannot ignore the actions of any other firm in the industry because of the likely adverse effect competitors may pose. Hence, explains why there are a few models that oligopoly markets can follow. 1) Cooperate model: Cartel/Price leadership 2) Competitive Model: Compete via price and non-price methods. Explain using kinked dd curve.

reactions of rival firms. Extensive production differentiation. As many prices prevail due to product differentiation and the lack of perfect knowledge of buyers, there is no one single equilibrium price in the market. Thus, there is no market demand curve for the product as each individual firms product is slightly different form the other.