Market Structures Cheat Sheet

The core ideas of Market Structures distilled into a single, scannable reference — perfect for review or quick lookup.

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Quick Reference

Perfect Competition

A market structure with many firms selling identical products, free entry and exit, perfect information, and price-taking behavior. Firms produce where P = MC and earn zero economic profit in the long run.

Monopoly

A market structure with a single seller of a product with no close substitutes and high barriers to entry. The monopolist is a price maker who restricts output below the competitive level to charge a higher price.

Monopolistic Competition

A market structure with many firms selling differentiated products with low barriers to entry. Firms have some pricing power due to product differentiation but earn zero economic profit in the long run as new firms enter.

Oligopoly

A market structure dominated by a small number of large, interdependent firms. Each firm's decisions about pricing and output affect rivals, leading to strategic behavior often analyzed with game theory.

Barriers to Entry

Obstacles that make it difficult or impossible for new firms to enter a market. These include economies of scale, patents, government licenses, control of essential resources, and high startup costs.

Deadweight Loss

The loss of total surplus (consumer plus producer surplus) that occurs when a market produces an inefficient quantity. Monopolies and oligopolies create deadweight loss by restricting output below the socially optimal level.

Nash Equilibrium

A situation in game theory where each player's strategy is optimal given the other players' strategies, and no player can benefit by unilaterally changing their strategy.

Price Discrimination

The practice of charging different prices to different consumers for the same product, based on willingness to pay. Requires market power, the ability to segment customers, and prevention of resale.

Allocative Efficiency

Achieved when resources are distributed such that the marginal benefit to consumers equals the marginal cost of production (P = MC). Only perfectly competitive markets achieve this in the long run.

Cartel

A formal agreement among competing firms to coordinate prices, output, or market territories. Cartels act like monopolies but are inherently unstable because each member has an incentive to cheat.

Key Terms at a Glance

Perfect Competition:A market structure with many firms, identical products, free entry/exit, and price-taking behavior. Long-run equilibrium: P = MC = min ATC.

Monopoly:A market with one seller, no close substitutes, and high barriers to entry. The firm is a price maker that produces where MR = MC with P > MC.

Monopolistic Competition:A market with many firms selling differentiated products and low barriers to entry. Long-run: zero economic profit with excess capacity.

Oligopoly:A market dominated by a few large interdependent firms. Strategic behavior is analyzed using game theory.

Deadweight Loss:The loss of total surplus when a market does not produce the efficient quantity. Caused by market power, taxes, or price controls.

Nash Equilibrium:A game theory outcome where no player benefits from changing strategy unilaterally. In oligopoly, often the mutual-cheat outcome.

Barriers to Entry:Factors preventing new firms from entering a market: economies of scale, patents, licenses, resource control, high capital requirements.

Price Discrimination:Charging different prices to different consumers for the same good based on willingness to pay. Requires market power and market segmentation.

Allocative Efficiency:The condition where P = MC, meaning resources are allocated to produce the goods consumers value most relative to cost.

Productive Efficiency:The condition where a firm produces at the minimum of its ATC curve, using the least resources per unit. Achieved in perfect competition long run.

Excess Capacity:In monopolistic competition, firms produce below the quantity that minimizes ATC, meaning they could lower costs by producing more.

Natural Monopoly:A monopoly arising from economies of scale so large that one firm can serve the entire market at lower cost than multiple firms.

Cartel:A group of firms that collude to restrict output and raise prices, acting collectively like a monopoly.

Dominant Strategy:A strategy that yields the best outcome for a player regardless of what other players do.

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