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Markets in Practice
Four Market Structures
Perfect competition
Monopolistic
competition
Oligopoly
Monopoly
Four Market Structures
Monopolistic Monopoly
More competition Less
competitive competitive
Perfect Competition
Perfect
substitutes
Perfect Competition
Perfect knowledge
• Prices
• Methods/technologies
Perfect Competition
Elasticity
Traffic analogy
In heavy traffic, all lanes seem to go the same speed. You leave the slower
lane to join the faster lane, which causes it to go slower. Equilibrium is
eventually reached.
Economies of scale
Brand loyalty
Patents
Geographic
Set-up costs
Predatory pricing
Licensing
Advertising
Monopolistic Competition
Product differentiation
o Differences in the products
make them imperfect
substitutes
o Toothbrushes
o Hairdressers
o Can just be branding
o Milk
Monopolistic Competition
Barriers to entry
o Higher than perfect competition, but still low
o Specialisations
o Licenses
o Advertising
o Set-up costs
Oligopoly
Interdependence
o The decisions that an oligopolistic firm makes have huge impacts
on the others in the oligopoly.
Oligopoly - Interdependence
In an oligopoly
$7 meal $5 meal
Non-price competition
• Price competition can be disastrous
• Branding and advertising
• Service (advice, after-sales)
• Warranty (not happy, money back)
• Differentiation (real or perceived)
Oligopoly
Pure
• Homogenous product
• Very little price competition
Differentiated
• Differentiated products (biscuits, soft drinks, cars)
• We know these because they advertise to tell us that
their products are different.
Oligopoly - Elasticity
Non-price competition
- they still advertise to increase
demand
Four market structures