Summary
1 Market structure describes the different conditions in markets that affect
the way in which prices and outputs are determined.
2 The four main types of market structure are perfect competition, monopoly,
monopolistic competition and oligopoly.
3 Market structure, conduct, performance and technology are all interdependent.
4 The determination of price and output can be examined graphically or
algebraically.
5 In any type of market the profit-maximizing output is always given by the
condition MC¼MR.
6 Firms can only make supernormal profit in the long run if there are barriers
to entry and exit.
7 Barriers can be either structural or strategic.
8 When comparing the performance of markets the key variables to examine
are price, output, profits and efficiency (both productive and allocative).
9 Allocative efficiency is concerned with the optimality of resource allocation
from the point of view of the economy as a whole, considering the
effects on both consumer and producer. This has important implications
for government policy.
10 Oligopoly is the most complicated type of market structure to analyse,
since the strategic decisions of firms are interdependent.
11 Oligopoly is in practice the most important type of market structure, since
the majority of most countries’ output is produced in this type of market
structure. This is especially true if we consider that many markets that
appear to feature monopolistic competition are, in reality, limited intersecting
oligopolies that are differentiated in terms of product and spatial
characteristics. Restaurants are a good example.