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8.1: Market Environment
Opening the book…
This is the last of the three modules on market environment (see figure 1).
Figure 1
There are three elements in the market environment:
Market structure
Conduct
Performance
The last two modules dealt with the most extreme ends of the market structure (e.g., perfect competition and monopoly).
Figure 2
At one end of the market structure spectrum there is perfect competition. Here we find firms locked in an incredibly fierce competitive battle. All firms in this industry are small and produce standardized goods.
At the other end we find the monopoly market structure. Here there is no competition. This industry has only one firm that produces the entire market supply of goods.
In this module, we turn our attention to another market structure: oligopoly* (see figure 3).
* Pronounced: olˑehˑgopˑolee
Figure 3
As you can see from figure 3, the oligopoly market structure lies between the two extreme market structures of perfect competition and monopoly. Here firms compete but the larger firms have significant market power. It is common to refer to all the market structures between perfect competition and monopoly as imperfect competition.
