Market Structures – Perfect vs Imperfect Competition
Market structure refers to the type of competition faced by firms in an industry.
1. Types of Market Structures
- Perfect Competition
- Monopoly
- Monopolistic Competition
- Oligopoly
- Duopoly
Imperfect competition includes monopoly, monopolistic competition, oligopoly, duopoly.
2. Perfect Competition – Features
Perfect competition is a market with very large number of buyers and sellers producing homogeneous product, with free entry and exit and perfect knowledge.
Main features:
- Large number of buyers and sellers.
- Homogeneous product (identical).
- Free entry and exit of firms.
- Perfect knowledge of market conditions.
- No transport cost (assumed equal).
- Firms are price takers, not price makers.
Key Exam Line
Under perfect competition, AR = MR = Price, and firm takes price from the industry.
3. Imperfect Competition – Overview
(a) Monopoly
- Single seller, many buyers.
- No close substitutes.
- Strong barriers to entry.
- Firm is price maker.
(b) Monopolistic Competition
- Many sellers.
- Product differentiation (brands, quality, packaging).
- Free entry and exit in long run.
- Non-price competition (advertising, service).
(c) Oligopoly
- Few big firms dominate the market.
- Interdependence in decision-making.
- Possibility of price rigidity.
(d) Duopoly
- Only two firms dominate.
- Each firm must consider rival’s reaction.
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4. Importance for Business Decisions
- Helps manager understand pricing power.
- Guides advertising and branding decisions.
- Determines long-run profit possibilities.
📋 Case Study: Smartphone Market in India
5. Quick Revision Points
- Market structure = nature of competition.
- Perfect competition vs monopoly vs monopolistic competition vs oligopoly.
- Perfect competition: price taker; monopoly: price maker; monopolistic: product differentiation; oligopoly: few firms, interdependence.
6. Quiz Time 🎯
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