A market structure in which there are many firms; each firm sells an identical product; there are many buyers; there are no restrictions on entry into the industry; firms in the industry have no advantage over potential new entrants; and firms and buyers are completely informed about the price of each firm’s product.
Perfect competition describes a market structure whose assumptions are strong and therefore unlikely to exist in most real-world markets. Economists have become more interested in pure competition partly because of the growth of commerce as a means of buying and selling goods and services. And also because of the popularity of auctions as a device for allocating scarce resources among competing ends.
A monopoly is a market structure in which there is only one producer/seller for a product. In other words, the single business is the industry. Entry into such a market is restricted due to high costs or other weaknesses, which may be economic, social or political. For instance, a government can create a monopoly over an industry that it wants to control, such as electricity. Another reason for the barriers against entry into a monopolistic industry is that oftentimes, one entity has the exclusive rights to a natural resource. For example, in Saudi Arabia the government has sole control over the oil industry.
Oligopoly is a market structure in which the number of sellers is small.
Oligopoly requires strategic thinking, unlike perfect competition, monopoly, and monopolistic competition. Under perfect competition, monopoly, and monopolistic competition, a seller faces a well-defined demand curve for its output, and should choose the quantity where
MR=MC. The seller does not worry about how other sellers will react, because either the seller is negligibly small, or already a