Market Structure

Definition

• Market structure is a set of market characteristics that determines the economic environment in which a firm operates.

• It describes the competitive environment of the market.

• iow. Market Structure is like the “game rules” for businesses in a specific market. It’s the environment where businesses compete with each other.

• Market structure depends on: (iow, These “rules” are determined by certain characteristics of the market)

  • The number and relative size of firms in the industry.
  • The degree of product similarity or differentiation.
  • Access to information.
  • Conditions of entry and exit.

Four specific market structures:

• perfect competition: Competition among the many small firms selling the same product.
  • eg. local vegetables markets
• Monopoly : Only one firm in the market and no competition.
• Monopolistic competition : Competition among the many small firms selling differentiated products.
• Oligopoly : Competition among the few large firms.