The Spectrum of Competition

Market structure describes how competitive an industry is: how many firms there are, how similar their products are, and how easily new firms can enter. At one end of the spectrum, perfect competition has many firms all selling an identical product, so no single firm has any influence over the price. At the other end, a monopoly is one firm selling a product with no close substitutes and facing no competition.

Between them lie monopolistic competition, with many firms selling similar but not identical products, and oligopoly, with only a few firms selling identical or similar products. The next three chapters take these structures one at a time.