Perfect Competition Definition:
A market with Perfect Competition is defined as having an unlimited number of buyers and sellers, perfect information (eg. with regards to product pricing of all firms), no barriers to entry or exit, and all firms sell homogenous (the same) goods.

Perfect Competition Examples & Explanation:
If you are one of many Ebay stores selling the same unbranded masks online during the Coronavirus epidemic, you are likely to charge a very similar market price. This is because if you sell at a higher price, consumers will buy from other stores. Hence, you are a price taker in the market. As a result, you will sell each mask for the same price to the unlimited number of buyers out there, causing your average and marginal revenues to be the same. As consumers have visibility over most stores and their listing prices, they have near perfect information of the market. There are also little to no barriers to entry/exit in the market, as it is extremely easy to set up or close a store on Ebay to sell masks. Perfect competition is the only market structure that has allocative efficiency by default, when compared to monopolistic competition, oligopoly or monopoly, where competition is imperfect. However, this form of market structure is unlikely to exist in reality due to its extreme competition and assumptions. Therefore, it is more of an Economic model for theoretical than practical purposes. Another close example is the currency exchange market where the service provided by firms is highly similar.

Perfect Competition Economics Notes

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Perfect Competition Video Explanation – EconPlusDal

The left video explains the perfect competition market structure, the right illustrates perfect competition in the short-run.

Perfect Competition Multiple Choice Questions (A-Level)

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Perfect Competition Essay Questions (IB)

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Perfect Competition Examples in Real Life

Related A-Level, IB Economics Resources

EconPlusDal YouTube Channel
– Shutdown Condition

– Introduction
– Short Run
– Long Run

Business Economics: Perfect Competition

Market Structure: Perfect Competition

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Monopoly Definitions:
– A Monopoly (Pure Monopoly) is defined as having only one seller in the market.
– A legal monopoly is defined as a firm controlling more than 25% of market share under UK competition regulation.

Monopoly Examples & Explanation:
Since there is no competition in the market, monopolies have full control on how much they charge consumers for their goods (i.e. are price setters/makers). To maintain this, monopoly markets have high barriers to entry meaning it is difficult for new firms to enter into the market. Monopolies tend to restrict output and raise market prices to maximise profit, and as a result create a welfare loss to society through market failure and inefficiency. An example will be Transport for London (TFL) which provides the London Underground railway service. They control the price for tickets and there are no close substitutes for how it is designed to make you sweat. New companies cannot enter the market and provide railway transportation due to the initial cost of building a railroad.

Monopoly Economics Notes with Diagrams

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It can be argued that the Apple app store is a monopoly. In this case, iphone app makers are consumers of Apple, as they pay Apple a part of their revenues to use the Apple app store. However, there is no alternative way for them to reach iphone users. It is also very difficult to create a store for apps due to patents and number of users meaning there is high barriers to entry. Amazon is an interesting example as it can be regarded as a monopoly in e-commerce, but have not maximised profits in its early years. The size of Amazon allows it to take advantage of economies of scale, meaning lower production costs so they can charge consumers less. However, will they have enough incentive to do so in the future?

Monopoly Video Explanation – EconPlusDal

The left video explains the monopoly market structure, the right evaluates the advantages and disadvantages of the monopoly market structure.

Monopoly Multiple Choice Questions (A-Level)

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Monopoly Essay Questions (IB)

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Monopoly in the News

Related A-Level, IB Economics Resources

EconPlusDal YouTube Channel
– Natural Monopolies
– Monopoly Regulation

– Monopoly Introduction
– Pure Monopoly and Monopoly Power
– Economic Welfare and Evaluation
– Natural Monopoly

– Business Economics: Monopoly
– Market Failure: Monopoly Power

– Monopoly Introduction
– Advantages
– Natural Monopoly
– Monopoly Regulation

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Oligopoly Definition:
An Oligopoly is a market structure where only a few sellers dominate the market.

Oligopoly Examples & Explanation:
Because there are only a few firms (players) in an Oligopoly, they tend to be highly interdependent of one another – meaning they will take in account each others’ actions when trying to compete in the market. Another characteristic is these markets also exhibit high barriers to entry, such that new firms cannot easily enter into the market. This characteristic is shared with Monopolies (one firm dominating) and Duopolies (two-firms dominating), explaining how they can dominate the market with large amounts of market share. If we consider the oil & gas industry, they tend to be an Oligopoly in most countries (think Shell, BP, Exxon) due to the huge capital investment required for oil exploration/mining, making it difficult for new producers to enter into the market. When a large oil/gas producer sells their oil at a lower price to increase their sales volume, other producers are likely to lower their prices as well to protect their share of the market. As a result, Oligopolies tend to keep market prices stable and focus on non-price competition, so that firms can avoid a price war. However, the negative oil prices from the coronavirus pandemic is also caused by other factors, including a lack of storage capacity for oil producers forcing them to sell, and a global lack of demand for oil during the crisis. In general, oil producers in OPEC agree on an amount of output to maintain a relatively high price for oil, meaning higher profits for the industry.

Oligopoly Economics Notes with Diagrams

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Oligopoly Video Explanation – EconPlusDal

The left video explains oligopoly and the kinked-demand curve, the right looks at competition and cartels in the oligopoly market structure.

Oligopoly Multiple Choice Questions (A-Level)

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Oligopoly Essay Questions (IB)

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Oligopoly in the News

Related A-Level, IB Economics Resources

EconPlusDal YouTube Channel
– Game Theory

– Oligopoly and Kinked Demand Curve
– Collusion
– Game Theory
– Advantages and Disadvantages

– Business Economics: Oligopoly
– Cartels
– Prisoner’s Dilemma

– Oligopoly Introduction
– Price Stability
– How Oligopolies Compete

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Monopolistic Competition Definition:
Monopolistic Competition is defined as a market structure with a large number of firms, low barriers to entry and differentiated products.

Monopolistic Competition Examples & Explanation:
Local restaurants, pubs, hairdressers, and even tutoring businesses tend to fall into the monopolistic competition market structure. These businesses are relatively easy to set-up, meaning they have low barriers to entry. They sell slightly different products to one another (e.g. Irish bar vs Sports bar; Chinese vs Indian takeaway), which gives them some market power to set their own prices. The more differentiated/unique their product is, the less substitutes there are for what they are offering, and the more control they have over prices to maximise profits (imagine takeaway sushi vs Michelin star sushi). Despite they are likely to make supernormal profits in the short-run, more firms will enter into the market in the long-run and compete those profits away by offering more substitute products. This will be due to the ease of entry and high contestability of the market. Monopolistic competition is considered less efficient than perfect competition but also not as inefficient as a monopoly.

Monopolistic Competition Economics Notes with Diagrams

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Monopolistic Competition Video Explanation – EconPlusDal

The left video gives an overview into monopolistic competition, the right looks at what happens in the market structure in the long-run.

Monopolistic Competition Multiple Choice Questions (A-Level)

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Monopolistic Competition Essay Questions (IB)

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Related A-Level, IB Economics Resources

– Monopolistic Competition Overview
– Non-Price Competition
– Evaluation

– Business Economics: Monopolistic Competition

– Monopolistic Competition Overview
– Non-Price Competition

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