Characteristics of market structures

An explanation of the characteristics which determine how firms behave

1. Characteristics of Market structures Prepared by Sandrea Butcher

2. Recall that market structure refers to the characteristics that determine how the firms in an industry behave. These characteristics include: Number of firms in an industry Type of product Control over price Freedom of entry and exit

3. Number of firms in an industry This can range from a large number of firms, to a few, or even one firm. I’ll just get rid of the competition!

4. Type of product Products can either be standardized or differentiated. With a standardized (or homogeneous) product there is no variety.

5. Differentiated products have differences which are physical or perceived. At the supermarket you have many different brands of toothpaste selling as follows: Whitening Tartar control Sensitive teeth Baking soda Anti-gingivitis Natural Children

6. Control over price Firms have varying control over price. Some accept the price set by the market, because if they attempt to increase the price, consumers will shop elsewhere. These are too expensive. I will try further up the street.

7. Other firms have some control over price because the product is different to others on the market.

8. Freedom of entry and exit Some industries may have heavy barriers to entry making them less competitive while other industries may have little to no barriers to entry.

9. Barriers include: Control of raw materials – If you do not own a quarry you cannot provide building sand. Licenses – Governments issues licenses to operate television stations in the Caribbean Walkers Sand Quarry, Barbados

10. High set up costs – Due to the nature of some business operations, heavy equipment is required and high set up costs

11. Some industries have weak barriers to entry. This is why there are so many firms operating.