Construction Economics and
Finance

UNIT III: Types of Market Structure
There are four basic types of market structures.
• Pure Competition
• Monopolistic Competition
• Oligopoly
• Monopoly

• Pure Competition
• Pure or perfect competition is a market structure defined by a large number of
small firms competing against each other.
• a marketing situation in which there are a large number of sellers of a product
which cannot be differentiated and, thus, no one firm has a significant
influence on price
• Monopolistic competition exists
• Monopolistic competition exists when many companies offer competing
products or services that are similar, but not perfect, substitutes. The
barriers to entry in a monopolistic competitive industry are low, and the
decisions of any one firm do not directly affect its competitors.

Monopoly
• The word monopoly has been derived from the combination of two
words i.e. ‘Mono’ and ‘poly’. Mono refers to single and poly to
control. In this way, monopoly refers to market situation in which
there is only one seller of a commodity. There are no close substitutes
for the commodity it produces and there are barriers to entry.

Characteristics of Monopoly:
• Single supplier. A monopolistic market is regulated by a single
supplier
• Barriers to entry and exit
• Profit maximizer
• Unique product
• Price discrimination

Advantages of Monopoly:
• Monopoly avoids duplication and hence wastage of resources.
• A monopoly has economics of scale as it is the only supplier of
product or service in the market. The benefits can be passed on to
the consumer.
• It can be used for research and development and to maintain the
status monopoly.
• Monopoly may use price discrimination which benefits the
economically weaker sections of the society.

Disadvantages of Monopoly
• Poor level of service
• No consumer sovereignty .
• Consumer may be charged high prices for low quality of goods and
services.
• Lack of competition may lead to low quality and out dated goods and
services.

Types of Monopoly
• Simple Monopoly
• Discriminating Monopoly
• Natural Monopoly
• Legal Monopoly
• Imperfect Monopoly
• Public Monopoly

• Simple monopoly or single Monopoly:
• It is type of monopoly in which single seller controls the entire market, by selling the
commodity at a single price foe all the consumer. There is no price discrimination in
the market.
• Discriminating monopoly:
• A discriminating monopoly is a market-dominating company that charges different
prices—typically, with little relation to the cost to provide the product or service—to
different consumers.
• Natural monopoly:
• A natural monopoly is a type of monopoly that exists typically due to the high start-
up costs or powerful economies of scale of conducting a business in a specific
industry which can result in significant barriers to entry for potential competitors.

• Legal Monopoly:
• A legal monopoly refers to a company that is operating as a monopoly under a
government mandate. A legal monopoly offers a specific product or service at a
regulated price. It can either be independently run and government regulated, or both
government-run and government regulated.
• Imperfect monopoly:
• This is a structure in which there is only one (dominant) seller. Products offered by
this entity have no substitutes. These markets have high barriers to entry and a single
seller who sets the prices on goods and services. Prices can change without notice to
consumers.
• Public Monopoly
• The Monopoly firm owned and operated by public or state government is called
public monopoly. It is also known as social monopoly .Their main motive is to
provide welfare to the public.

Oligopoly
• An oligopoly is a market structure with a small number of firms, none
of which can keep the others from having significant influence. The
concentration ratio measures the market share of the largest firms.

Characteristics of Oligopoly
• High Barriers To New Entry
• Price-setting Ability
• The Interdependence Of Firms
• Maximized Revenues
• Product Differentiation
• Non-price Competition

Advantages of Oligopoly:
• Consumers can even benefit from lower prices and better quality
goods and services in this situation.
• The market itself will still lack competition, but the behavior of the
organizations can still be highly competitive.

Disadvantages of an Oligopoly
• Higher concentration levels reduce consumer choice.
• Collusion is possible in this structure to further reduce competition
• It can lead to decision-making bias and irrational behavior.
• Deliberate barriers to entry can occur with an oligopoly.