Market Structure - The nature and degree of competition among firms operating in the same industry
- Markets are classified according to certain structural characteristics
- Pure competition, monopolistic competition, oligopoly, and monopoly
PURE COMPETITION - A large number of buyers and sellers exist – no single buyer or seller can affect price
- Buyers and sellers deal in identical products (ex. salt)
- Each buyer and seller acts independently – competition keeps price low
- Buyers and sellers are reasonably well-informed about items for sale
- Buyers and sellers are free to enter into, conduct or get out of business
REALITY - Pure competition does not exist to any great degree - for this reason it is considered a theoretical situation
- It is studied in order to evaluate other market structures
- Any market situation that lacks any of the conditions above is considered imperfect competition
- Most/all firms fall into this category
Monopolistic Competition - Characteristics
- Has all the characteristics of pure competition except the fact that the products sold are not identical
- product differentiation – the products are similar but not identical
Monopolistic Competition - Non-price Competition
- When the product is differentiated, price competition is no longer the issue
- Advertisements try to convince consumers that the product is somehow better than the other brand
- Heavy advertisement and promotion from these types of companies
- If you can convince consumers you have a better product, you may be able to get a higher price for it – but not too much
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