Market Structures and Barriers to Entry in Economics

This article discusses the different market structures in economics, including perfect competition, monopolistic competition, oligopoly, and monopoly. It also explores the concept of barriers to entry and nonprice competition. Examples of different market structures are provided, along with diagrams illustrating the differences in demand curves between perfectly competitive firms and monopolists.

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2018 SEMESTER 1 (2018.1)
MGE1108 ECONOMICS FOR BUSINESS

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Question 1
The number of firms in the market
Perfect competition and monopolistic competition have a huge number of firms in the market
so much so that a single firm does not have control over the market price. The number of
sellers in the market structure of oligopoly is more than three. However, the number of sellers
is such that it can be counted. In the case of monopoly, there exists only one firm that
controls and serves the entire market (Smith, 2016).
The similarity to the products sold
Perfect competition sells products which are exactly equal to other sellers of the market but in
case of monopolistic competition, the products of each of the sellers are slightly differentiated
from the other sellers. A pure oligopoly which generally does not exist in the real life
produces exactly similar products, on the other hand, impure oligopolies produces products
which are slightly different from the other sellers. Monopoly is a single seller market and
hence there is no question of similarity with the other sellers of the market.
Barriers to entry
Barriers to entry are most significant in case of monopoly where new players are not allowed
to enter either by the force of the monopolist or by the assistance from the side of the
government. In comparison, due to the fact that individual firms in perfect competition and
monopolistic competition do not have huge power, they cannot restrict the entry or exits of
other firms of the market. The barriers to entry are more in oligopoly compared to the perfect
competition but less than that of monopoly.
Question 2
Barriers to entry
The barriers to entry are the obstacle which is faced by a new firm that tries to enter a market
(Olsen, 2017). There is a different source of barriers to entry that differently impacts on the
operation of the company. While government regulation makes the production process
illegal, high cost such as that of monopoly makes the entry unprofitable. Apart from that,
economies of scale or the product differentiation also restricts the new company to enter a
market and hence considered a barrier to entry.
Question 3
Nonprice competition is a business strategy wherein firms in the market upgrades the features
of their products in order to increase the relative value of their product. Monopolistic
competition and oligopoly experience nonprice competition the most due to product
differentiation that exists in this market (Komlos, 2016).

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Question 4
Coles Supermarket in your city – Monopolistic Competition as their product is
differentiated from the other huge number of supermarkets.
McDonalds Restaurant in your city- Oligopoly as there is few of the big companies, the
action of which impacts on the other.
Metro Trains in Melbourne or Sydney Trains in Sydney- Monopoly, as the government
restricts the new entry in this case.
National Australia Bank- Oligopoly, as this is one of few big financial institutes of the
country.
Academies Australasia Polytechnic- Monopoly, as it is the only company under a
government that provides polytechnic educations.
A small stall in one of Melbourne/Sydney’s Sunday markets that sells souvenirs such as
wallets, caps, tee-shirts, key chains- Perfect Competition as, the size is small and among a
huge number of sellers.
A car workshop or hair salon in your city- Perfect Competition, as there are a huge number
of other salons and workshop that provides similar services.
iPhone and Samsung in the mobile phone industry- Oligopoly, as these are the two of the
biggest players in the smartphone industry.
Question 5
Diagram A Diagram B
Diagram A is the demand faced by the perfectly competitive firm and diagram B is the
demand faced by a monopolist. The demand curve between the firms differs due to the fact
that, the elasticity of demand in the two markets is different (Bober, 2016). For a perfectly
competitive firm, demand is fully elastic as there are other substitute products in the market.

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Thus, if a seller increases the price slightly above the market price, the buyers will buy
products from the other existing sellers of the market. On the other hand, a monopolist does
not have a competitor and hence if he increases the price of his products, the buyers of the
market do not have any option substitute the consumption. Therefore, few of the customers of
the market still demand the product of the monopolist at the increased price. However, in this
context, it needs to be noted that, demand does go down with an increase in prices of the
products as consumers have limited income and hence they react with reducing the demand.

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Reference
Bober, S., 2016. Alternative principles of economics. Routledge.
Komlos, J., 2016. Principles of economics for a post-meltdown world. Springer.
Olsen, J.A., 2017. Principles in health economics and policy. Oxford University Press.
Smith, H.M., 2016. Understanding economics. Routledge.