Market Structure

The market structure is the type of market in which a firm operates. It is useful to know this for a firm, so that it can evaluate its best strategy for pricing and how at what output to produce as well as how to maximise its profits. The different types of market structures are summarised in the table below.

At one end of the spectrum is perfect competition, firms are prices takers and perfect competition is said to be an ideal market structure, however some economists disagree with this. On the opposite end of the spectrum is monopolies. Firms here are prices takers and have more control over price setting than other types of market structures. Between these 2 points are monopolistic competition, which sways more towards the perfect competition side, and oligopolies which are closer to monopolies.

There are different levels of barriers to entry for firms wishing to enter certain markets depending on their market structure. These assumption and barriers are made below. It is also very hard to definitely say what type of structure a market is under. A market may, for example, have only one firm but yet have low barriers to entry. Therefore it isn’t always conclusive as to what market structure a firm is under, and different arguments can be put forward for this.