Pearson Edexcel · A-Level · Economics B
Course version: 9EB0 · Version from Sept 2015
A) Characteristics of monopoly, oligopoly, imperfect and perfect competition
Full specification wording
Spectrum of competition: a) Characteristics of monopoly, oligopoly, imperfect and perfect competition
Market structures are defined by characteristics such as the number of firms, barriers to entry, and product differentiation.
Checked against the Pearson Edexcel 9EB0 specification (opens in a new tab) on .
- Point 1 of 2
- 4 key terms
Study notes
From the checked teaching notes for this specification point.
The idea
Market structures are defined by characteristics such as the number of firms, barriers to entry, and product differentiation. In perfect competition, many small firms sell homogeneous products with no barriers to entry, making them price takers. Imperfect (monopolistic) competition features many firms selling differentiated products, like local cafes, with low barriers to entry. An oligopoly is dominated by a few large interdependent firms, such as supermarkets, with high barriers to entry and non-price competition. A monopoly exists when a single firm dominates the market, possessing high barriers to entry and significant price-making power, such as a regional water supplier.
What earns the marks
- Identify perfect competition by its infinite buyers and sellers, homogeneous products, and perfect information.
- Recognise that imperfect (monopolistic) competition involves product differentiation and low barriers to entry.
- Distinguish oligopoly through the interdependence of a few large firms and high barriers to entry.
- Define a monopoly as a single seller with high barriers to entry and significant price-making power.
Common mistakes and how to put them right
Confusing imperfect competition with oligopoly.
Put it right: Imperfect (monopolistic) competition has many firms and low barriers to entry, unlike oligopoly.
Assuming monopolies always charge the highest possible price.
Put it right: They are constrained by market demand and aim to maximise profit where marginal cost equals marginal revenue.
Stating that perfect competition exists in reality.
Put it right: It is a theoretical model used as a benchmark to evaluate real-world market structures.
Exam tips
- Use the spectrum of competition to compare how market power increases as you move from perfect competition towards monopoly.
- Always link the characteristics of a market structure to the behaviour of the firms within it, such as pricing strategies.
- Memorise real-world examples for oligopoly and monopoly to apply in context-based questions.
Try the lesson
The start of the Spectrum of competition: a) Characteristics of monopoly, oligopoly, imperfect and perfect competition lesson, made from checked teaching notes for this specification point.
Have a go first
Which of the following is a defining characteristic of a perfectly competitive market?
Listen
Market structures are defined by characteristics such as the number of firms, barriers to entry, and product differentiation. In perfect competition, many small firms sell homogeneous products with no barriers to entry, making them price takers. Imperfect (monopolistic) competition features many firms selling differentiated products, like local cafes, with low barriers to entry. An oligopoly is dominated by a few large interdependent firms, such as supermarkets, with high barriers to entry and non-price competition. A monopoly exists when a single firm dominates the market, possessing high barriers to entry and significant price-making power, such as a regional water supplier. A strong answer earns marks for these points. Identify perfect competition by its infinite buyers and sellers, homogeneous products, and perfect information. Recognise that imperfect (monopolistic) competition involves product differentiation and low barriers to entry. Distinguish oligopoly through the interdependence of a few large firms and high barriers to entry. Define a monopoly as a single seller with high barriers to entry and significant price-making power. Exam tip: Use the spectrum of competition to compare how market power increases as you move from perfect competition towards monopoly.
Key words
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Market structures
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Barriers to entry
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Product differentiation
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Firm behaviour
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See every definition
- Market structures
- Defined by characteristics such as the number of firms, barriers to entry, and product differentiation.
- Barriers to entry
- Obstacles that range from none in perfect competition to low in imperfect competition and high in oligopoly and monopoly.
- Product differentiation
- A feature of imperfect competition, where many firms sell differentiated products, unlike the homogeneous products of perfect competition.
- Firm behaviour
- Linked to the characteristics of a market structure, such as the pricing strategies firms use.
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