Market Structure

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Market Structure

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Market structures

• Competition
• Monopoly
• Oligopoly
• Monopolistic Competition

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Competition

• Many firms
• Selling identical products
• Easy entry and exit

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2. Monopoly

• One firm
• No close substitutes in market
• Entry is difficult

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3. Oligopoly

• A few firms
• Identical or differentiated products
• Some barriers to entry

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4. Monopolistic Competition

• Many firms
• Differentiated products
• Easy entry and exit

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Measuring market structure
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Market Concentration

• Based on market shares
• 1. Concentration Ratio
• CR4 market share of 4 largest firms
• CR4 MS1MS2MS3MS4
• 2. Herfindahl index
• sum of squared market shares

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Interpreting concentration

• Highly concentrated
• CR4 gt 60 Hgt1800
• moderately concentrated
• CR4 gt 40 Hgt1000
• relatively unconcentrated
• CR4 lt 40 Hlt1000

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Interpreting CR4, H

• Monopoly
• CR4100 H10,000
• Competition
• CR4 near 0 H near 0

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Market Concentration examples

• N CR4 H
• cars 398 84 2676
• chips 333 70 2716
• malt bev160 99 NA
• ice 513 24 264
• printing 28,485 7 22

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Defining markets

• Who competes
• only look at competing products
• close substitutes
• cross-elasticity gt 3

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Defining markets

• Geographic markets
• most published measure are national
• local markets
• international