Market Structures and Barriers to Entry in Economics

1
2018 SEMESTER 1 (2018.1)
MGE1108 ECONOMICS FOR BUSINESS

2

3
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).