HL only This topic is for Higher Level students.
When a few firms, or a single firm, dominate a market, they can restrict output and raise prices. This topic compares market structures, shows how firms maximise profit, and asks when market power should be controlled.
| Feature | Perfect competition | Monopolistic competition | Oligopoly | Monopoly |
|---|---|---|---|---|
| Number of firms | Very many | Many | A few large firms | One (or one dominant firm) |
| Product | Identical (homogeneous) | Differentiated | Identical or differentiated | Unique, no close substitutes |
| Barriers to entry | None | Low | High | Very high |
| Market power | None: price taker | Some | Significant; firms are interdependent | Very high: price maker |
| Examples | Close to: wheat and other farm markets | Restaurants, hair salons, clothing shops | Indian telecoms, airlines, cement, soft drinks | Indian Railways (passenger rail), local water supply |