Four features of a market, number of firms, barriers to entry, product and information, decide how much power a firm has over price. Learn them once and every later topic gets easier.
Why does the same product cost the same everywhere in one market and vary so much in another?
A market structure is defined by the number of firms, the barriers to entry, how different the products are, and how well informed buyers and sellers are. Together these set a firm's power over price. That power shapes its demand curve, its profit, and how efficient the market is.
A market structure describes how a market is organised and how firms in it behave. Economists place structures on a spectrum. Perfect competition sits at one end and monopoly at the other.
Four features decide where a market sits. First, the number and size of firms. Second, barriers to entry: anything that makes it costly or slow for a new firm to join, such as high start-up costs, patents or brand loyalty. Third, whether the product is homogeneous (identical across firms) or differentiated (made to look or work differently). Fourth, how much information buyers and sellers have about prices and quality.
These features decide a firm's pricing power. A price taker must accept the market price. A price maker can choose its price, within limits set by demand.
| Structure | Firms | Barriers | Product | Pricing power |
|---|---|---|---|---|
| Perfect competition | Very many, all small | None | Homogeneous | None: price taker |
| Monopolistic competition | Many | Low | Differentiated | Some, but limited |
| Oligopoly | A few dominant firms | High | Either | Considerable, with interdependence |
| Monopoly | One dominant firm | Very high | Unique | Greatest: price maker |
Interdependence means each firm's best choice depends on how rivals react. It is the defining feature of oligopoly, because a few firms watch each other closely.
The extremes are models. No real market meets every condition of perfect competition. Pure monopoly is also rare, because most firms face some substitutes.
Economists measure how concentrated a market is with a concentration ratio. It adds up the market shares of the largest firms.
A concentration ratio is a clue, not a verdict. It says nothing about barriers, product type or how fiercely firms compete.
A profit-maximising firm in any structure produces where marginal cost (MC, the extra cost of one more unit) equals marginal revenue (MR, the extra revenue from one more unit). The rule does not change. The revenue curves do.
A price taker in perfect competition can sell any quantity at the market price. Its demand curve is horizontal, so average revenue (AR, price per unit) equals MR at every output. It is horizontal because the firm is too small to move the market price.
A price maker faces the whole market demand, or a share of it. To sell more it must cut its price. So its AR curve slopes down. MR then falls faster than AR, because the lower price applies to every unit sold. With a straight-line AR curve, MR has the same intercept and twice the slope.
Read the right-hand panel in this order. Find where MC meets MR and drop down to find output Q*. Then go up to the AR curve to find the price P*. The price is set by demand at that output. It is not read off the MR curve.
The steeper the AR curve, the greater the firm's pricing power. It is steeper where there are few substitutes and high barriers. That is why structure matters: it sets the elasticity of demand each firm faces.
Price makers charge above MC, so price exceeds marginal cost. Economists call this a loss of allocative efficiency (resources not matched to what consumers value). A price taker produces where price equals MC, so it is allocatively efficient in the short run.
Petrol is an identical good sold in very different structures. In July 2023 the Competition and Markets Authority (CMA, the UK competition regulator) found motorway stations charged about 20p a litre more for petrol and 15p more for diesel than other stations.[1] A driver on a motorway has few alternatives, so demand is less elastic. The CMA's June 2026 update again found supermarkets cheapest on average and motorway stations dearest.[2]
Groceries look like an oligopoly. In December 2025 Kantar, a market research firm, put Tesco on 28.7%, Sainsbury's on 16.3%, Asda on 11.4% and Aldi on 10.1%.[3] That makes a four-firm ratio of 66.5%. The discounter Aldi shows that rivals can still take share.
Vets show information as a feature. In March 2026 the CMA concluded a market investigation into vets for household pets, and one finding was that a lack of consumer information weakened competition.[4,5] Pet owners rarely compare prices in an emergency, so firms face a less elastic demand.
A balanced answer says that fewer firms usually means more pricing power. It then says that the harm depends on barriers, information and regulation.
One more habit costs marks. Many students list the four features and stop. Link each one to pricing power, then to the firm's demand curve, then to the outcome for consumers.
The economics is the same on every board; the question format is what changes. Most questions on this topic take one of six shapes. Open each to see how the topic appears in it and what earns the marks. All questions here are original Curriculum Circle practice questions, not board questions.
On this topicVery common on this topic. Expect definitions of barriers, price taker and concentration ratio, and which feature belongs to which structure.
What earns the marksAO1 for the definition and AO2 when you must match a short description to a structure.
CC practice questionA market has five firms, and the two largest hold 70% of sales. Which of these is most likely? A perfect competition B oligopoly C monopolistic competition D pure monopoly (1 mark)
On this topicUsually a concentration ratio, a market share or a percentage change. The interpretation line often earns a mark.
What earns the marksAO1 for the formula and AO2 for the calculation and the comment on what it shows.
CC practice questionIllustrative figures: firms A, B, C and D have sales of £40m, £30m, £20m and £10m in a market worth £160m. Calculate the three-firm concentration ratio and comment on what it suggests. (3 marks)
On this topicCommon as 'Explain why' a feature changes a firm's behaviour, or why two markets with the same good differ in price.
What earns the marksAO1 for the feature, AO2 for the context and AO3 for a short chain of reasoning.
CC practice questionExplain why barriers to entry give a firm more control over price. (4 marks)
On this topicOften a diagram comparing a price taker with a price maker, or a data extract on market shares. Draw the figure and label it fully.
What earns the marksAO2 for using the extract and AO3 for a developed chain from structure to price and output.
CC practice questionUsing a diagram, analyse why a firm with market power may charge a higher price than a price taker. (9 marks)
On this topicRarer as a stand-alone question. It usually appears inside topics such as competition policy, using a market-share extract about a real firm.
What earns the marksAO3 for the analysis and AO4 for a judgement on whether the structure harms consumers.
CC practice questionEvaluate whether a market with only a few large firms must be bad for consumers. Use the extract on supermarket market shares. (12 marks)
On this topicAppears as a comparison of structures, or as 'to what extent' competition benefits consumers. It also links to efficiency and government intervention.
What earns the marksAO1 to AO3 for knowledge and analysis, with AO4 deciding the top band through a supported judgement.
CC practice questionAssess the view that consumers always benefit when a market has more firms. (25 marks)
| Weight | What it is | What it means on market structures | |
|---|---|---|---|
| AO1 | 20–23% | Knowledge and understanding of terms, concepts, theories and models | State the four features, define each structure, and quote the formula for a concentration ratio. Be exact with terms such as barriers to entry and price taker. |
| AO2 | 26–29% | Application to economic contexts | Apply structure to a named market. Use shares, prices and entry conditions from the extract, such as motorway fuel or UK groceries. |
| AO3 | 26–29% | Analysis of issues and their impact on economic agents | Build chains from structure to elasticity, then to price, output and efficiency. Use MC = MR and a correct diagram. |
| AO4 | 22–25% | Evaluation, using evidence to reach a judgement | Weigh harm against benefit, and say what the outcome depends on: entry, information, scale economies and regulation. Then reach a supported judgement. |
Weightings are approximate and taken from the AQA A-level Economics 7136 specification [0]. Edexcel and IAL weight the objectives differently, but they test the same four skills.
Assess the view that consumers always benefit when a market has more firms. (25 marks)
More firms usually means lower barriers and more substitutes. Each firm then faces a more elastic demand curve, because a price rise sends customers to rivals. So firms have less power to price above marginal cost.
Price falls towards MC, so consumers pay less and allocative efficiency improves. Rivalry also pushes firms to cut costs, so productive efficiency may rise. In groceries, discounters such as Aldi, on 10.1% in December 2025, show how a new rival can take share from larger firms.[3]
The claim says 'always', and that is too strong. Many small firms may not gain economies of scale, so unit costs and prices could be higher. Large profits in a concentrated market may also pay for innovation, which helps consumers over time.
Number of firms also matters less than information and entry. In vets, the CMA found weak competition partly because owners lacked clear information, so adding firms alone would not fix it.[4,5] In fuel, motorway sites charged a premium because drivers have few alternatives.[1]
My judgement is that more firms usually benefit consumers, but only when barriers are low and buyers can compare prices. Where information is weak or scale economies are large, regulation may help more than extra entry.
In July 2023 the CMA reported that motorway service stations charged around 20p a litre more for petrol and 15p more for diesel than other fuel stations.[1] In a monitoring update published in June 2026, it again found motorway stations the most expensive and supermarkets the cheapest on average.[2]
In December 2025 Kantar reported UK grocery market shares of 28.7% for Tesco, 16.3% for Sainsbury's, 11.4% for Asda and 10.1% for Aldi.[3] Those four shares sum to 66.5%, so the market shows oligopoly features alongside strong price rivalry from discounters.
The CMA published the final report of its veterinary services market investigation on 24 March 2026.[4] It found that a lack of consumer-facing information was producing weak competition and high prices in the market for household pets.[5]
Everything above is the topic page. The pieces below take it further. Each one trains a particular assessment objective rather than covering the topic again, and they are added over the year.
Figures and facts were checked against these sources on 2 November 2026. Worked numbers labelled "Illustrative figures" are invented for teaching.
The CC Economics revision platform drills market structures with diagram and calculation practice, and the Inner Academy covers the topic in recorded lessons.
See the Economics platformThe Inner Academy