1. Market Structures
Learning objectives:
Define the term market structure
Outline the characteristics of market structures
What is market structure?
Market structure means the characteristic under which a market operates. It consists of four main
elements:
How easy it is for new firms to enter the market of for existing firms to leave
The number of buyers and sellers
The types of goods and services sold in the market
How price is determined in market
Extreme market structures
It is possible to identify two extreme market structures. At one extreme is a situation where the
market is controlled by one supplier. This is referred to as a monopoly. For example, there is only
one television station in Barbados: it therefore has no competing station. Competition is also
limited in the oil industry in Trinidad, where companies have to have a licence from the
government to drill for oil. At the other extreme there are competitive markets in which many
sellers provide almost identical products, for example bag juice in Jamaica, or snow cones in
Barbados.
Opposite markets extremes
In the past many Caribbean countries’ bus routes were run by a single company – the state-run bus
company. Today there is often fierce competition between rival bus companies offering different
services, for example reggae bus companies playing reggae music along the way.
Bag Juice (Jamaica)
Snow cones (Barbados)
Television stations in
Barbados
2. Market structure Number of buyers and
sellers
Types of goods Freedom of entry Price controls
Perfect competition Many buyers and sellers Goods all the
same
Perfectly free entry Firms are price
takers
Monopolistic
competition
Large numbers of buyers
and several sellers
Goods are
similar but
differentiated
Free entry or easy
access
Firm are price
setters
Oligopoly Large numbers of buyers,
only few sellers
Goods can be
differentiated or
homogeneous
Restrictions to
entry
Firms are price
setters
Monopoly Many buyers, one seller Only one
producer
Very difficult for
new firms to enter
Firms are price
setters
Features of market structures
1. The number of buyers and sellers: most consumer markets have many buyers. In some
markets for producer goods, for examples machinery, there may be a smaller number of
buyers. The number of sellers varies from just one in a pure monopoly situation to an
infinite number in perfectly competitive markets.
Case Study Changing market structures in Antigua
In 2010 in Antigua, there was much controversy about the arrival of the dollar bus to
transport Antigua State College students. Until 2010 one bus driver dominated the
route transporting Antigua State College students to St. John’s. The bus driver was
used to charging $2.25 and was making good revenues and profits from the
business.
However, another driver was not happy about the route being dominated by one
company and set out to win a share of that market. He created the one-dollar bus
route, charging just one dollar. Soon his bus was full as students queued to travel on
his bus.
Questions
1. What type of market structure did this bus route have when there was only
one Bus Company serving it? Why was it possible to charge $2.25?
2. How would the entry of the one-dollar bus have changed the market
structure on this particular route? What would you expect to be the impact
on prices in the market?
3. 2. Types of goods: some goods are identical (or almost identical) in nature, for example bags
of white sugar. Other goods are highly differentiated, for example works of art painted by
skilled, celebrated artists. The more sellers there are, the higher the level of competition.
3. Freedom of entry and exit: some markets are difficult to enter. For example, many
professions, such as medicine, involve high levels of skill so there are relatively few
practitioners. Other markets are easy to enter, for example to set up a business selling bag
juice. The greater the ease of entry, the more intense the competition.
4. Controls on price: in most markets firms compete with each other through the prices the
charge. However, in monopoly markets the monopolist is able to set prices. In some
instances the government also sets price controls in the form of maximum prices that sellers
can charge.
The number of buyers and sellers
is a key determinant of how
competitive a market is.
The ease of entry to a market also
affects the level of competition.
In competitive markets firms take
the price from the market.
Monopoly businesses can set
their own price.
Key Points
1. What is a market structure?
2. What markets can you think of where
there are only one or two suppliers?
3. What markets can you think of where
there are many suppliers
Summary Questions
