Market Structures
Market structure describes the competitive environment in which firms operate. It determines pricing power, output decisions, profit levels, and efficiency. Four main structures range from perfect competition to monopoly.
Perfect Competition
Many firms sell identical products; no firm influences price (price takers). Free entry and exit. Perfect information. Examples approximate: agricultural commodities. Firms earn zero economic profit in long run. Allocatively and productively efficient.
Monopoly
Single seller with no close substitutes. High barriers to entry (legal, natural, technological). Price maker — sets price above marginal cost. Deadweight loss indicates allocative inefficiency. Government regulates monopolies or breaks them up (antitrust).
Monopolistic Competition
Many firms sell differentiated products. Some pricing power due to brand loyalty and product differences. Free entry and exit. Examples: restaurants, clothing brands. Short-run profits attract entry until economic profit reaches zero.
Oligopoly
Few large firms dominate. Products may be identical (steel) or differentiated (cars). High barriers to entry. Firms are interdependent — each considers rivals' reactions. Game theory and the prisoner's dilemma explain strategic behaviour. Collusion (cartels) is illegal but tempting.
Market Structure in IT
Tech markets often exhibit winner-take-most dynamics due to network effects, switching costs, and economies of scale. Platform monopolies (Google search, Facebook social) raise antitrust concerns. Open source and regulation promote competition.
Summary
Market structure determines competition, pricing, and efficiency. Understanding perfect competition, monopoly, oligopoly, and monopolistic competition provides frameworks for analysing real-world markets including technology.