Types of market structure

1. Perfect competition – Many firms, freedom of entry, homogeneous product, normal profit.
2. Monopoly – One firm dominates the market, barriers to entry, possibly supernormal profit.
   1. Monopoly diagram
3. Oligopoly – An industry dominated by a few firms, e.g. 5 firm concentration ratio of > 50%. Interdependence of firms
   1. Oligopoly diagram
   2. Collusive behaviour – firms seek to form an agreement to increase prices.
   3. Kinked demand curve model – when prices are stable and firms compete on non-price competition.
4. Monopolistic competition – Freedom of entry and exit, but firms have differentiated products. Likelihood of normal profits in the long term.
5. Contestable markets – An industry with freedom of entry and exit, low sunk costs. The theory of contestability suggests the number of firms is not so important, but the threat of competition.
6. Duopoly – where two firms dominate the market. For example, Pepsi and Coca Cola. Android vs Apple. A duopoly falls between a monopoly and oligopoly.

Related pages

• Mergers
• Objectives of firms
• Bertrand competition – (a competitive duopoly)