1.5.1 Market Structures

The Spectrum of Competition

Competition: refers to the number of businesses in a market and the degree of rivalry between them. The spectrum of competition ranges from perfect competition to pure monopoly, with various market structures in between. The main market structures include:

Characteristics of Market Structures

The main characteristics that distinguish different market structures include:

• Number of firms in the market - more firms indicates stronger competition.
• Type of products sold (homogeneous or differentiated) - homogeneous products are identical, while differentiated products have unique features that distinguish them from competitors.
• Barriers to entry and exit - high barriers to entry prevent firms joining the market and limit competition.
• Level of information - if markets have perfect information, consumers and producers can make fully informed decisions, which increases competition. Asymmetric information, where one party has more or better information than the other, can reduce competition.