Using real life examples, explain the differences between the different market structures.

There a four types of market structures. A monopoly is where one firm dominates the market, it is characterised by high entry and exit barriers, high sunk costs and a possibility for supernormal profits. An example of this would be Google who is most known for search engines. An oligopoly is where there are a few firms that dominate the market. It is characterised by high entry and exit barriers and collusion. A good example of this is the pharmaceutical industry. There are a few key players in the industry and due to the high sunk costs, there are hardly ever any new companies as the entry barriers are high.

Monopolistic competition is where there are a lot of firms with differentiated products and there is freedom of entry and exit into the market. There is also a possibility for normal profits in the long run. An example of this is the toothpaste market. Although there are many different producers of toothpastes, each one has a unique characteristic that differenciates it from the others thus allowing producers to set higher prices. Perfect competition is where there is freedom of entry and exit, the products sold are homogenous. An example of this would be a farmers' market. All the fruits and vegetables sold are the same and so prices cannot be set too high as consumers will go for the lower priced products.