Market structures
Market structures
| Structure | Firms | Barriers | Long-run profit |
|---|---|---|---|
| perfect competition | very many | none | normal only |
| monopolistic competition | many | low | normal |
| oligopoly | a few | high | often supernormal |
| monopoly | one | very high | supernormal |
Practice
In perfect competition, each firm is a:
With many firms and no barriers, each is a tiny price taker earning normal profit long-run.
Key features
- perfect competition — each firm is a tiny price taker; productively and allocatively efficient.
- monopolistic competition — many firms, product differentiation, but free entry competes profit away.
- oligopoly — a few large firms watch each other; may collude (a cartel) to fix prices.
- monopoly — one seller behind high barriers to entry; lasting supernormal profit but inefficient.
Practice
A monopoly can earn supernormal profit long-term because of:
High barriers to entry protect the single seller, allowing lasting supernormal profit.
Practice
When a few oligopoly firms agree to fix prices, the group is a:
Colluding firms that fix prices form a cartel.
You've got it
Key idea
- spectrum: perfect competition → monopolistic competition → oligopoly → monopoly
- perfect competition = price takers, efficient; monopoly = high barriers, supernormal profit
- oligopolies may collude to form a cartel