21-Apr-26

FUNDAMENTALS OF ECONOMICS

MODULE 3: MARKET STRUCTURES

PREPARED BY; MR. JOSEPH MLAY

APRIL, 2026

MEANING OF KEY TERMS

•Market – Refers to a mechanism through which buyers
and sellers interact to exchange goods and services.
• Mechanism – can be a physical place like Mwanjelwa Market
or can be a virtual place like Online Market
• Components of a market includes;-
• Buyers and Sellers
• Goods and Services
• Price of goods/services
• Physical Place/Virtual place
• Willingness (buyers and sellers)

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MARKET STRUCTURE
•Refers to the organization and categorization of the firms
based on the nature and degree of competition in the
markets for goods and services.
•Market structure describe;-
• How firms in the market they compete each other
• How firms sets prices of goods/services
• How resources are allocated
•Degree of competition measures to what extent firms
compete with each other to attract customers, and
maximize profits.

DETERMINANTS OF MARKET STRUCTURE

•Determinants of market structures – Refers to the factors
that describe the category or types of a market structure.
•The determinants are;-
• Number of buyers and sellers,
• Nature of the goods,
• Degree of entry and exit the market,
• Price setting mechanism

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TYPES OF MARKET STRUCTURE

•Based on the degree of competition, the market structure
can be classified into the following categories/types;
1. Perfect Competitive Market (PCM)
2. Monopolistic Competition Market
3. Monopoly Market
4. Oligopoly Market

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1. PERFECT COMPETITIVE MARKET

•Refers to a market structure at which there are many
buyers and sellers, and firms are price takers.
•PCM is considered as a hypothetical/theoretical market, a
market that does not exist in real world.
•Learning PCM is important because;-
• It is a tool that is used to understand other types of markets
• Act as a benchmark to make comparison to other markets
•In real world we have examples of near PCM like
agricultural products.

CHARACTERISTICS OF PCM
1. Large number of buyers and sellers – single seller or single buyer
represent a small portion of the whole market.
2. Freedom of entry and exit in the market – there is no barrier to a
firm to enter or exit the market.
3. Homogenous products – all firms sell exactly the same products in
terms of quality, features, and packaging.
4. Perfect information about the market – buyers and sellers have
perfect information about price, quality, and production mechanisms.
5. Firms are price takers – no single firm have an influence in the
market price, the market price is only determined by the forces of
demand and supply.

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2. MONOPOLISTIC COMPETITION MARKET

• Refers to a market where there are many sellers selling similar
but differentiated products.
• In monopolistic, each firm has a market power over its products
• The products are differentiated in terms of quality, packaging,
branding.
• Examples of monopolistic competition markets;-
• Soft drinks (Azam, Mo, U-fresh, Afiya, Sayona, Pepsi, Coca-Cola)
• Shoes & Clothes (Adidas, Puma, Gucci, & Louis Vuitton)
• Soap (Dettol, Asantee, Dove, Lifebuoy, Family, Diva, Detrex,
Ushindi, Jet, Lit, Kombora, Tembo, Haiba, Royal etc).

CHARACTERISTICS OF MONOPOLISTIC
COMPETION MARKET
1. Large number firms – many firms who are competing for the same
group of consumers in the market.
2. Freedom of entry and exit in the market – there is no barrier to
firm to enter or exit the market.
3. Differentiated products – firms are selling similar but differentiated
products in terms of quality, features, branding, and packaging.
4. Imperfect information about the market – buyers rely on
advertising, and product review while firms do marketing to attract
consumers.
5. Firms are price makers – firms have market power to set price of
their product (monopoly power).

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CLASS ACTIVITY
•Use examples, describe the similarities and differences
between perfect competitive market and monopolistic
competitive market.

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LAYOUT OF THE ANSWER

Part 1: Give a clear meaning of each market structure
A perfect competitive market refers to a market structure
at which there are many buyers and sellers, and firms are
price takers, examples … while monopolistic competitive
market refers to a market where there are many sellers
selling similar but differentiated products, examples ….
Part 2: Provide similarities in paragraph format
Part 3: Provide differences in paragraph format

3. MONOPOLY MARKET
• Refers to a market structure where there is a single dominant
producer/seller/supplier of a good/service in the whole
market.
• Example of a monopoly markets;-
• TANESCO in Tanzania
• Kenya Power Supply
• Uganda Power Supply
• In monopoly market, a firm has a Monopoly Power
• Monopoly Power – refers to the ability of the firm to
influence the market price of its product by producing more
or less of the product.

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CHARACTERISTICS OF MONOPOLY
1. Single seller/producer in the market – single firm dominates
the entire market of a certain good/service.
2. No perfect substitutes goods/services – single firm supply
products with no perfect substitute.
3. Barriers to enter the market – high level of barriers that limit
other firms to enter the market, barriers come from government
regulation.
4. Price maker – firm is a price maker due to monopoly power, a
firm can decide to charge higher price than the equilibrium price.
5. Imperfect information about the market – buyers have limited
information about the market, this makes the seller to engage in
price discrimination.

OLIGOPOLY MARKET
• Refers to a market structure in which only a few
sellers/producers offer a similar or identical products in the
market.
• Oligopolistic firms are interdependent
• The actions/decisions of any one seller in the market can have a
large impact to the other sellers.
• There is a possibility to form collusion
• Examples
• In Tanzania – Mobile Network Operators (Vodacom, Yas, Airtel,
Halotel)
• World wide – OPEC - Iran, Iraq, Kuwait, Saudi Arabia, Venezuela,
Qatar, Indonesia, Libya, the United Arab Emirates, Algeria, Nigeria,
Ecuador, and Angola

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CHARACTERISTICS OF OLIGOPOLY
1. Small number of large firms – There are few number of
large firms who have potential share in the market.
2. High barriers to entry – there existence of barriers
(resources or regulations) to enter the market for new firms.
3. Homogeneous or differentiated products – the products
can be homogenous or differentiated in terms of quality,
packaging and branding.
4. Non - price competition – price does not change
frequently, changing price can affect firms profits.
5. Potential for collusion – firms can collude instead of
competing with each other, firms can agree to set price and
quantity supplied, e.g. OPEC.

TIPS FOR EXAMINATION

1. Before examination
Preparation (Tuition Fees, Examination ID, University ID)
2. During examination
Arriving early in the examination room
Follow examination instructions
Fill important information (Name, RegNo., ExamNo.,
Programme e.g. DHRM, Course Code)
Submit examination paper to your respective programme
Do not involve yourself in any form of examination
irregularity.

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TIPS FOR EXAMINATION …

PROGRAMME COURSE CODE
DBA MCDB05210
DAF MCDA05210
DMM MCDM05210
DHRM MCDH05210
DPSM MCDP05210
DED MCDE05210

END OF MODULE 3

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