What is Market Structure?

The term ‘market structure’ describes the way in which goods and services are supplied by firms in a particular market. It is the collection of factors that determine how buyers and sellers interact in a market, how prices change and how different levels of the production and selling processes interact.

The following stages can help to identify a market structure within the spectrum of competition:

·         By counting the number of firms. The bigger the total, the closer to perfect competition the market structure will be.

·         The concentration ratio of company; this will show the market share held by the large companies. The bigger the percentage, the closer the industry will be to the oligopoly and Monopoly models.

·         By considering how easy or difficult it is for new firms to set up and how easy it is for firms to exit.

·         By considering the importance of economies of scale to the firms. It will show how the different costs affect the contestability in the market. The more important they are, the closer the industry will be to an oligopoly.