CHARACTERISTICS OF MARKET STRUCTURESPrepared by Sandrea Butcher

• 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

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!

TYPE OF PRODUCT

• Products can either be standardized or differentiated.

• With a standardized (or homogeneous) product there is no variety.

• 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

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.

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

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.

• 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

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

• Some industries have weak barriers to entry.

• This is why there are so many firms operating.