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Microeconomics: Competitive Market Behavior

Competitive Behaviour vs. Competitive Market Structure

Here are some key terms to begin discussing and understanding competitive behaviors and market structures. Competitive behaviour is the degree to which individual firms compete against each other to gain higher market shares, earn higher profits, etc. It is also the manner in which firms compete against each other (advertising, pricing policies, customer service, etc.)

Market Structure: Includes all the features which affect the behaviour / performance of the firms in a market.

Features of market structure include:
> Number and size of sellers (concentration ratio);
> Ability of one firm’s actions to influence another firm;
> Degree of product differentiation;
> Degree of freedom of entry (including gov’t regulation).

– The greater the ability of an individual firm to influence the market in which it sells its product, the less competitive the market structure.

Types of market structures

> Perfect competition;
> Monopoly;
> Monopolistic competition; and
> Oligopoly

Perfectly competitive market structure

– each firm has zero market power;

– the actions of any individual firm will have no influence, whatsoever, in the market in which it sells its product.

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