Class notes
Market Structures
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A brief summary of various market structures.
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IntroductionSuccessful firms are profitable. Profit, however, is
determined by the difference in the cost and sales of
output in the short or long-run. Since short and long-
run output and costs have been analyzed in previous
chapters, this chapter analyses how the revenue of a
firm is determined.
The difference between cost and revenue will then
determine profit or loss.
Sellers and buyers influence prices by their
numbers and purchasing decisions. In essence,
the number of buyers and sellers in a market may
determine the degree of competition or market
structure of the industry.
Market structure is determined by many factors
that create competitiveness among the firms in an
industry.
Factors that determine market structure are:
> The ability to set or accept the going market
price in the industry
› Barriers to entry
› The type of product sold
› The level of short- and long-run profit earned
› The number of sellers
› Knowledge of market conditions
› The number of buyers
› The demand curve that each market faces,
depending on the market power of buyers
The mobility of the firms, i.e., the ability to adapt
or shift resources to other industries.
Barriers to entry or exit
These are the difficulties or invisible barriers that new
firms face trying to enter or leave an industry. Firms
enter an industry easily or can make it difficult for
new entrants. Some barriers are: legal patents, brand
name or trade logos, control of raw materials, high
advertising costs of existing firms, extremely high set-
up costs (as found in the oil industry), extremely high
cost of land, economies of scale of existing firms, and
raising large sums of financial capital.
The number of buyers and sellers
If there are few sellers they may enjoy monopoly
power, while many buyers provide them the
opportunity to achieve market power.
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