A financial analyst must understand the characteristics of market structures to better forecast a firm's future profit stream.

We focus on those characteristics that affect the nature of competition and pricing. They are:

• The number of firms (including the scale and extent of foreign competition).
• The extent of product differentiation (which affects cross-price elasticity of demand).
• The pricing power of seller(s). Can a firm influence the market price?
• Barriers to entry. Exit costs should also be considered.
• Non-price competition such as product differentiation.

The characteristics of each market structure will be discussed in subsequent subjects of this reading.