2. Market Structures
A. Perfect Competition
● Characteristics:
○ Many buyers and sellers.
○ Homogeneous products.
○ Free entry and exit.
○ Perfect information.
● Result: Firms are price takers, P = MC (allocative efficiency).
B. Monopoly
● Characteristics:
○ Single seller.
○ Unique product with no close substitutes.
○ High barriers to entry (legal, natural).
● Result: Price maker, P > MC, inefficiency due to deadweight loss.
C. Monopolistic Competition
● Characteristics:
○ Many sellers.
○ Differentiated products.
○ Some pricing power.
● Result: Long-run equilibrium where P > MC but no supernormal profits.
D. Oligopoly
● Characteristics:
1. Few large firms dominate.
2. Interdependence of firms.
3. Potential for collusion or price wars.
● Models:
1. Cournot (quantity competition).
2. Bertrand (price competition).
3. Stackelberg (leader-follower dynamics).
A. Perfect Competition
● Characteristics:
○ Many buyers and sellers.
○ Homogeneous products.
○ Free entry and exit.
○ Perfect information.
● Result: Firms are price takers, P = MC (allocative efficiency).
B. Monopoly
● Characteristics:
○ Single seller.
○ Unique product with no close substitutes.
○ High barriers to entry (legal, natural).
● Result: Price maker, P > MC, inefficiency due to deadweight loss.
C. Monopolistic Competition
● Characteristics:
○ Many sellers.
○ Differentiated products.
○ Some pricing power.
● Result: Long-run equilibrium where P > MC but no supernormal profits.
D. Oligopoly
● Characteristics:
1. Few large firms dominate.
2. Interdependence of firms.
3. Potential for collusion or price wars.
● Models:
1. Cournot (quantity competition).
2. Bertrand (price competition).
3. Stackelberg (leader-follower dynamics).
