Skip to page content

Market Forms — Part 1: Perfect Competition, Monopoly, Monopolistic Competition and Oligopoly

Beta

Lesson

Market Forms

Part 1 — how markets differ in number of sellers, product, entry and control over price.

In this lesson you will

Explain the features of perfect competition and why the firm is a price taker
Compare monopoly and monopolistic competition
Explain interdependence in oligopoly and the meaning of monopsony

Part 1 at a glance

Diagram

Four market forms at a glance

Comparison table of four market forms by number of sellers, product, entry, control over price and selling costs: perfect competition has very many sellers of an identical product with free entry and no price control; monopoly has one seller with barriers and full control; monopolistic competition has many sellers of differentiated products with free entry and some control; oligopoly has a few interdependent sellers with difficult entry
Basis	Perfect competition	Monopoly	Monopolistic competition	Oligopoly
Sellers	Very many	One	Many	A few
Product	Identical	No close substitute	Differentiated	Identical or differentiated
Entry and exit	Free	Barred	Free	Difficult
Control over price	None (price taker)	Full (price maker)	Some	Some, watched by rivals
Selling costs	None	Little	High	High

Concept

Perfect competition: the features

Table of the features of perfect competition and how each makes the firm a price taker: very many sellers, homogeneous product, free entry and exit, perfect knowledge and perfect mobility of factors
Feature	Why it makes the firm a price taker
Very many buyers and sellers	Each firm's output is a tiny part of supply
Homogeneous product	A higher price loses all buyers to rivals
Free entry and exit	No firm keeps a special position for long
Perfect knowledge	Everyone knows the one ruling price
Perfect mobility of factors	Factors move to where they earn most