What are the four market structures in economics?

Market structures describe the competitive environment in which firms operate, determined by factors such as the number of firms, barriers to entry, and the degree of product differentiation. Each structure produces different outcomes for price, output, and efficiency. Examiners expect you to compare structures confidently.

In the UK, examples range from agricultural markets (close to perfect competition) to supermarkets like Tesco and Sainsbury's (oligopoly) and Royal Mail's historic dominance in letter delivery (monopoly). Recognising real-world examples strengthens evaluation marks significantly.

Monopolistic competition sits between perfect competition and oligopoly — firms sell differentiated products with low barriers to entry. The UK restaurant industry is a strong example. In the long run, supernormal profit is competed away as new firms enter.

1. →(4 marks) Define the term 'barrier to entry' and give two examples relevant to a monopoly market.
2. →(8 marks) Explain how a firm in monopolistic competition maximises profit in the short run.
3. →(12 marks) Analyse the differences in price and output decisions between a perfectly competitive firm and a monopolist.
4. →(20 marks) Evaluate the view that oligopoly is the market structure most harmful to consumer welfare in the UK economy.
5. →(25 marks) "Monopolies always lead to market failure and should be regulated." Assess this view with reference to UK examples.

• →Always define the specific market structure named in the question before analysing — examiners award definition marks independently of the quality of your subsequent argument.
• →Show the profit-maximising output (MC = MR) on any diagram you draw, and explicitly label supernormal or normal profit to access higher diagram marks.
• →Avoid describing oligopoly behaviour without distinguishing between collusive and non-collusive conduct, as this distinction is frequently rewarded in 12-mark and above questions.
• →Include a comparison of long-run versus short-run equilibrium when discussing monopolistic competition, as many students incorrectly treat short-run supernormal profit as a permanent feature.
• →Define barriers to entry precisely when evaluating monopoly power — examiners penalise vague references to "high costs" without identifying whether barriers are structural, statutory, or strategic.

Market Structure: The organisational and competitive characteristics of a market, including the number of firms, product differentiation, and ease of entry and exit.

Barrier to Entry: Any factor that prevents or restricts new firms from entering a market, thereby protecting the incumbent firm's ability to earn supernormal profit.

Supernormal Profit: Profit earned above normal profit, where total revenue exceeds total costs including opportunity cost, represented on a diagram by the area above the AC curve at the profit-maximising output.

Oligopoly: A market structure dominated by a small number of large, interdependent firms, where the actions of one firm directly influence the decisions of rivals.

Price Maker: A firm with sufficient market power to set its own price rather than accepting the market price, characteristic of monopoly and, to a lesser extent, oligopoly.

Allocative Efficiency: Achieved when resources are distributed so that price equals marginal cost (P = MC), ensuring goods are produced at the level consumers value them most highly.