Market structures describe how different industries are organized based on

the degree and nature of competition for goods and services. They are
primarily differentiated by the number of firms, the type of product sold, the
ease of entry and exit for firms, and the firms’ ability to influence prices.
Here’s a comparison and contrast of the four main market structures:

1. Perfect Competition

Definition: A theoretical market structure where numerous small firms

compete against each other.

Characteristics:

1)Number of Firms: Very large number of small firms.

Product Differentiation: Firms sell identical (homogeneous) products. There’s

no difference in quality, features, or branding.

Barriers to Entry: None. Firms can freely enter or exit the market.

Control over Price: Firms have no control over price; they are “price takers”
and must accept the market price determined by overall supply and demand.

Competition: Competition is based solely on price (though firms can’t set it).
No non-price competition like advertising.

Information: Perfect information is available to both buyers and sellers.

Examples: While a purely perfect market is theoretical, some agricultural
markets (like wheat or corn farmers selling to a large market) come close.

Efficiency: Considered the most efficient market structure (allocatively and

productively efficient in the long run).

Long-Run Profit: Firms earn zero economic profit in the long run due to free
entry eroding any short-term profits.

2. Monopolistic Competition

Definition: A market structure where many firms sell products that are similar
but not identical.

Characteristics:

Number of Firms: Many firms, but fewer than perfect competition.

Product Differentiation: High degree of product differentiation (real or

perceived differences in quality, branding, features, location). Products are
close substitutes but not perfect ones.

Barriers to Entry: Low barriers to entry and exit, making it relatively easy for
new firms to join.
Control over Price: Firms have some control over price due to product
differentiation; they are “price setters” to a limited extent. Demand is
downward-sloping but elastic.

Competition: Strong competition based on price, quality, features, branding,

and marketing. Significant non-price competition.

Examples: Restaurants, clothing stores, hairdressers, supermarkets,

toothpaste brands.

Efficiency: Less efficient than perfect competition. Not productively efficient

(firms have excess capacity) and not allocatively efficient (P > MC).

Long-Run Profit: Firms tend towards zero economic profit in the long run due
to relatively free entry.

3. Oligopoly

Definition: A market structure dominated by a small number of large firms.

Characteristics:

Number of Firms: Few large firms (e.g., 3-5 dominant firms).

Product Differentiation: Products can be identical (e.g., steel, oil) or
differentiated (e.g., cars, smartphones, aircraft).

Barriers to Entry: High barriers to entry (e.g., economies of scale, patents,

high start-up costs, strategic actions by existing firms).

Control over Price: Firms have significant control over price, but they are
interdependent. The actions of one firm strongly affect the others, leading to
strategic pricing behavior (e.g., price leadership, collusion potential, price
wars, price rigidity).

Competition: Competition can be intense and strategic, involving price,

features, marketing, and innovation. Non-price competition is common. Firms
must constantly consider competitors’ reactions.

Examples: Automobile industry, airline industry, telecommunications

providers (like Airtel, Vi, Jio in India), aircraft manufacturers (Boeing and
Airbus – a duopoly case), oil and gas companies.

Efficiency: Generally inefficient (allocatively and productively) compared to

perfect competition. P > MC.

Long-Run Profit: Potential for significant long-run economic profits due to

high barriers to entry.

4. Monopoly
Definition: A market structure where a single firm controls the entire supply
of a good or service with no close substitutes.

Characteristics:

Number of Firms: One.

Product Differentiation: The product is unique, with no close substitutes

available.

Barriers to Entry: Very high or completely blocked barriers to entry (e.g.,

control of essential resources, patents, government licenses, natural
monopoly due to economies of scale).

Control over Price: The firm has significant market power and is a “price
maker,” able to control the price (though constrained by market demand).
May practice price discrimination.

Competition: No direct competition. The firm may engage in advertising or

public relations to enhance its image or increase demand.

Examples: Local utility companies (like electricity or water providers – often

regulated monopolies), Indian Railways (state-owned). Pure monopolies are
rare, especially unregulated ones.

Efficiency: Generally considered the least efficient market structure

(allocatively inefficient as P > MC, and potentially productively inefficient due
to lack of competitive pressure).
Long-Run Profit: Potential for significant long-run economic profits due to
blocked entry. Comparison Summary Table: | Feature | Perfect Competition |
Monopolistic Competition | Oligopoly | Monopoly | |---|---|---|---|---| | Number of
Firms | Very Many | Many | Few | One | | Type of Product |
Homogeneous/Identical | Differentiated | Identical or Differentiated | Unique
(No close subs) | | Barriers to Entry | None / Very Low | Low | High | Very
High / Blocked | | Control over Price | None (Price Taker) | Some | Some to
Significant | Significant/Regulated | | Competition | Price Only | Price, Quality,
Marketing | Strategic (Price, Non-Price) | Advertising/PR | | Long-Run Profit |
Zero Economic Profit | Zero Economic Profit | Potential Positive Profit |
Potential Positive Profit | | Efficiency (Alloc.) | Efficient (P = MC) | Inefficient (P
> MC) | Inefficient (P > MC) | Inefficient (P > MC) | | Examples | Agriculture
(approx.) | Restaurants, Clothes | Cars, Airlines, Telecoms | Local Utilities |
Similarities:

All structures represent ways firms interact within a market.

Firms in all structures generally aim to maximize profits, typically by

producing where marginal revenue (MR) equals marginal cost (MC).

All involve interaction between buyers and sellers. Contrasts (Key

Differences):

Competition Level: Decreases significantly from perfect competition (highest)

to monopoly (lowest).

Firm Influence: Increases from perfect competition (none) to monopoly

(highest).

Product Variety: Increases from perfect competition (none) to monopolistic

competition and oligopoly (significant), then drops to one unique product in
monopoly.
Ease of Entry: Decreases significantly from perfect competition (easiest) to
monopoly (hardest).

Efficiency: Generally decreases from perfect competition (most efficient) to

monopoly (least efficient). Understanding these market structures helps
analyze industry behavior, pricing strategies, efficiency, and the potential
need for government regulation.

Question 2

Perfect Competition:

Examples: Large open-air food markets like Bodija Market in Ibadan, Mile
12 Market in Lagos, or similar markets across Nigeria selling staple
agricultural produce (e.g., yams, garri, tomatoes, peppers).

Why it fits (approximately):

Numerous Buyers and Sellers: Thousands of small-scale farmers and

traders operate in these markets.

Homogeneous Products: Within basic categories, the goods are very

similar (one seller’s raw yam is much like another’s).

Low Barriers to Entry/Exit: It’s relatively easy for a new trader to start
selling (renting a stall or space) or to leave the market.

Price Takers: Individual sellers have little to no power to influence the

overall market price; they generally sell at the prevailing market rate which
fluctuates based on overall supply and demand.

Monopolistic Competition:

Examples:
 * Restaurants and “Bukas” (local eateries): Ibadan, Lagos, and other cities
have countless eateries offering similar types of food but differentiated by
taste, quality, location, branding, and service.

Hairdressing and Barbing Salons: Numerous salons exist, competing

through skill, location, ambiance, price, and specialized services.

Sachet Water (“Pure Water”) Producers: Many brands exist. While the
basic product is water, they compete through branding, perceived
purification methods, and distribution networks.

Clothing Boutiques/Tailoring Shops: Many independent shops sell clothes

or offer tailoring, differentiated by style, quality, and customer service.

Why it fits:

Many Firms: Lots of independent businesses operate in these sectors.

Differentiated Products: Services or products are similar but not identical,

allowing for consumer choice based on preference.

Low Barriers to Entry: Relatively easy to open a restaurant, salon, or

small shop compared to heavy industries.

Some Price Control: Businesses have some flexibility in setting prices due
to their differentiation, but competition limits this power.

Oligopoly:

Examples:

Telecommunications: Dominated by a few large players: MTN, Glo, Airtel,

and 9mobile.

Banking: A small number of large banks (often referred to as Tier-1 banks

like Access Bank, Zenith Bank, UBA, GTB, First Bank) hold a dominant share
of the market assets and deposits.

Cement Manufacturing: Production is dominated by Dangote Cement,

Lafarge Africa (WAPCO), and BUA Cement.

Major Soft Drink Bottlers: Nigerian Bottling Company (Coca-Cola

products), Seven-Up Bottling Company (Pepsi products), and Rite Foods (Bigi
drinks) control a large portion of the market.

Why it fits:
 Few Dominant Firms: A small number of companies control the majority of
the market share.

High Barriers to Entry: Significant capital investment, licensing

requirements (telecoms, banking), economies of scale, and brand loyalty
make it difficult for new competitors to enter and challenge the established
players.

Interdependence: The actions of one firm (e.g., changing data prices in

telecoms) directly impact the others and often lead to reactions.

Potential for Differentiated or Homogeneous Products: Telecoms and

drinks are differentiated; cement can be seen as more homogeneous but
branding still plays a role.

Monopoly:

Examples: (Often these are regional or regulated monopolies)

Electricity Distribution Companies (DisCos): Each DisCo has a monopoly

over electricity distribution within its designated geographic zone. For
example, Ibadan Electricity Distribution Company (IBEDC) is the sole licensed
distributor for Oyo, Ogun, Osun, Kwara, and parts of Niger, Ekiti, and Kogi
states. Consumers in this zone have no alternative provider for grid
electricity.

Electricity Transmission: The Transmission Company of Nigeria (TCN)

operates as a single entity managing the national power transmission grid.

(Potential/Near Monopoly): Dangote Refinery, once fully operational and if

other refineries remain inefficient, could potentially exert near-monopolistic
control over the domestic supply of refined petroleum products.

(Historical Example): Before deregulation, NITEL had a monopoly on

fixed-line telecommunications services in Nigeria.

Why it fits:

Single Seller (in a defined market/region): Only one provider of the

specific service (like grid electricity distribution) within that area.

Unique Product/Service: No close substitutes for grid electricity from

another provider within the zone.
 Very High Barriers to Entry: Extremely high infrastructure costs and
licensing requirements block potential competitors in areas like electricity
distribution/transmission.

These examples illustrate how the theoretical market structures apply within
the specific context of the Nigerian economy.