Introduction to Market Structure
-
Upload
kato-rivera -
Category
Documents
-
view
25 -
download
1
description
Transcript of Introduction to Market Structure
KRUGMAN'SMICROECONOMICS for AP*
Introduction to Market Structure
Margaret Ray and David Anderson
Micro:
Econ:
21
57
Module
What you will learnin this Module:
• The meaning and dimensions of market structure.
• The four principal types of market structure—perfect competition, monopoly, oligopoly, and monopolistic competition.
Market Structures
•The way a product is supplied depends on how the industry is structured. Economists define four different market structures; perfect competition, monopoly, oligopoly, and monopolistic competition.
Defining Market Structures
• How many Firms?
• Type of product?
Perfect Competition
• Two necessary conditions for perfect competition
• Firms are price-takers
• Free entry and exit
Monopoly
• A monopolist is a firm that is the only producer of a good that has no close substitutes. An industry controlled by a monopolist is known as a monopoly.
• A monopoly industry has barriers to entry.
• Ownership of essential resources
• Economies of scale
• Technological superiority
• Government created barriers
Oligopoly
• An oligopoly is an industry characterized by a small number of large firms with some degree of market power.
• Characteristics of an oligopoly industry include;
• a few large firms
• barriers to entry
• interdependence
Measuring Market Power
• Four-firm Concentration Ratio (CR4): Add up the market share of the four largest firms in the industry.
• Herfendahl-Hirschmann Index (HHI): The sum of the market shares, squared, for all firms in the industry.
Monopolistic Competition
• Monopolistic competition is a market structure characterized by
• Many firms
• Differentiated product
• No barriers to entry/exit