Chapter 2 – Market Structure, Types and Segmentation
© WJEC | CBAC
Market Structure
There are a variety of differing market structures which are separated by the levels
of competition that exist within each market and the market conditions in which the
businesses operate.
Competition increases as the number of businesses in the market increases:
Monopoly Oligopoly Monopolistic Perfect
competition competition
Perfect competition
Characteristics
• There are a large number of businesses competing and no one business is large enough
to influence the activities of others.
• There are no market leaders and no price leaders, so each business must accept the
going price on the marketplace – they are price takers.
• The goods sold are homogenous – there is no difference between the goods sold by
one business or any other business. This means that there is no branding, no product
differentiation, no way of telling goods apart.
• Businesses have equal access to technology, meaning that they have equal levels of
productivity and each business will benefit in the same way from any economies of scale
that are available.
• Consumers in a perfectly competitive market have full market information, they know
what is being sold and the price the goods are sold at. They can access a wide number of
suppliers to the market.
• Businesses are free to leave or enter the market at any time: there are no barriers to
entry or exit.
These unrealistic conditions mean that perfect competition is merely a model.
In reality there is always some sort of branding or differentiation – whether it is the quality
of products, price of products or the location of where products are sold. It has some use as
the starting point to analyse the behaviour of other market structures in the real world.
Monopoly
Characteristics:
• A single producer within a market – one business has 100% of the marketplace. This is
known as a pure monopoly.
, Chapter 2 – Market Structure, Types and Segmentation
© WJEC | CBAC
• They are likely to erect barriers to prevent others from entering their market.
• Monopolists are called price makers as they have a significant influence on price.
Nonetheless, they cannot simply charge what they want as the law of supply and
demand still operates.
Pure monopolies were not uncommon in the UK 30 years ago. The average household
only had the option of one gas supplier, one home telephone supplier, and one electricity
supplier etc. With the introduction of competition into these markets through deregulation
and privatisation, these monopolies have in the main disappeared. Until recently the Royal
Mail had a monopoly over the delivery of letters in the UK, but even this is now opening up
to competition.
Pure monopolies with 100% of the market are now very rare.
The UK and EU competition authorities regard any business with over 25% of the market
as having potential monopoly power, and will investigate situations where it believes this
power is being abused.
Monopolies can, however, offer advantages to consumers. Being big or very big they can
benefit from massive economies of scale, reducing prices and making goods affordable.
Also the profits earned can be used for investment into improving products, improving
production techniques and developing new products.
Oligopoly – oligopolistic competition
Characteristics:
• There are many businesses but only a few dominate the market.
• Each business tends to have differentiated products with a strong brand identity.
• Brand loyalty is encouraged by the use of heavy advertising and promotion.
• Prices can be stable for long periods, although short price wars do occur.
• Some barriers to entry do exist: for example, high start-up costs in relation to
manufacturing.
Many of our largest industries, whether manufacturing, retailing or service industries, are
oligopolistic in nature. In retailing, the grocery market is dominated by Tesco, Sainsbury’s,
Morrisons and Asda. In clothing retailing, each age group have just three or four major chain
stores that dominate their marketplace.
When businesses in an oligopolistic market act together (collude), a cartel is formed.
Cartels try to keep prices high, whilst the businesses involved share the market between
themselves. This type of collusion has occurred in a wide range of industries: for example,
the airline industry and the sports clothing industry. This formal collusion is illegal.
© WJEC | CBAC
Market Structure
There are a variety of differing market structures which are separated by the levels
of competition that exist within each market and the market conditions in which the
businesses operate.
Competition increases as the number of businesses in the market increases:
Monopoly Oligopoly Monopolistic Perfect
competition competition
Perfect competition
Characteristics
• There are a large number of businesses competing and no one business is large enough
to influence the activities of others.
• There are no market leaders and no price leaders, so each business must accept the
going price on the marketplace – they are price takers.
• The goods sold are homogenous – there is no difference between the goods sold by
one business or any other business. This means that there is no branding, no product
differentiation, no way of telling goods apart.
• Businesses have equal access to technology, meaning that they have equal levels of
productivity and each business will benefit in the same way from any economies of scale
that are available.
• Consumers in a perfectly competitive market have full market information, they know
what is being sold and the price the goods are sold at. They can access a wide number of
suppliers to the market.
• Businesses are free to leave or enter the market at any time: there are no barriers to
entry or exit.
These unrealistic conditions mean that perfect competition is merely a model.
In reality there is always some sort of branding or differentiation – whether it is the quality
of products, price of products or the location of where products are sold. It has some use as
the starting point to analyse the behaviour of other market structures in the real world.
Monopoly
Characteristics:
• A single producer within a market – one business has 100% of the marketplace. This is
known as a pure monopoly.
, Chapter 2 – Market Structure, Types and Segmentation
© WJEC | CBAC
• They are likely to erect barriers to prevent others from entering their market.
• Monopolists are called price makers as they have a significant influence on price.
Nonetheless, they cannot simply charge what they want as the law of supply and
demand still operates.
Pure monopolies were not uncommon in the UK 30 years ago. The average household
only had the option of one gas supplier, one home telephone supplier, and one electricity
supplier etc. With the introduction of competition into these markets through deregulation
and privatisation, these monopolies have in the main disappeared. Until recently the Royal
Mail had a monopoly over the delivery of letters in the UK, but even this is now opening up
to competition.
Pure monopolies with 100% of the market are now very rare.
The UK and EU competition authorities regard any business with over 25% of the market
as having potential monopoly power, and will investigate situations where it believes this
power is being abused.
Monopolies can, however, offer advantages to consumers. Being big or very big they can
benefit from massive economies of scale, reducing prices and making goods affordable.
Also the profits earned can be used for investment into improving products, improving
production techniques and developing new products.
Oligopoly – oligopolistic competition
Characteristics:
• There are many businesses but only a few dominate the market.
• Each business tends to have differentiated products with a strong brand identity.
• Brand loyalty is encouraged by the use of heavy advertising and promotion.
• Prices can be stable for long periods, although short price wars do occur.
• Some barriers to entry do exist: for example, high start-up costs in relation to
manufacturing.
Many of our largest industries, whether manufacturing, retailing or service industries, are
oligopolistic in nature. In retailing, the grocery market is dominated by Tesco, Sainsbury’s,
Morrisons and Asda. In clothing retailing, each age group have just three or four major chain
stores that dominate their marketplace.
When businesses in an oligopolistic market act together (collude), a cartel is formed.
Cartels try to keep prices high, whilst the businesses involved share the market between
themselves. This type of collusion has occurred in a wide range of industries: for example,
the airline industry and the sports clothing industry. This formal collusion is illegal.
