Scribd
Upload
645 views4 pages

Market Structure

Market structure refers to how industries are classified based on competition. There are four main types: perfect competition, monopolistic competition, oligopoly, and monopoly. Perfect competition has many small sellers and buyers of homogeneous products. Monopolistic competition has differentiated products. Oligopoly has a small number of large companies where strategies depend on competitors. Monopoly has a single seller with no competition.

Uploaded by

Pranjal Tiwari
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
645 views4 pages

Market Structure

Market structure refers to how industries are classified based on competition. There are four main types: perfect competition, monopolistic competition, oligopoly, and monopoly. Perfect competition has many small sellers and buyers of homogeneous products. Monopolistic competition has differentiated products. Oligopoly has a small number of large companies where strategies depend on competitors. Monopoly has a single seller with no competition.

Uploaded by

Pranjal Tiwari
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 4

What is Market Structure?

Market structure, in economics, refers to how different industries are classified


and differentiated based on their degree and nature of competition for goods
and services. It is based on the characteristics that influence the behavior and
outcomes of companies working in a specific market.

Some of the factors that determine a market structure include the number of
buyers and sellers, ability to negotiate, degree of concentration, degree
of differentiation of products, and the ease or difficulty of entering and exiting
the market.
Understanding Market Structures

In economics, market structures can be understood well by closely examining


an array of factors or features exhibited by different players. It is common to
differentiate these markets across the following seven distinct features.

1. The industry’s buyer structure


2. The turnover of customers
3. The extent of product differentiation
4. The nature of costs of inputs
5. The number of players in the market
6. Vertical integration extent in the same industry
7. The largest player’s market share
By cross-examining the above features against each other, similar traits can be
established. Therefore, it becomes easier to categorize and differentiate
companies across related industries. Based on the above features, economists
have used this information to describe four distinct types of market structures.
They include perfect competition, oligopoly market, monopoly market, and
monopolistic competition.

Types of Market Structures


1.  Perfect Competition

Perfect competition occurs when there is a large number of small companies


competing against each other. They sell similar products (homogeneous), lack
price influence over the commodities, and are free to enter or exit the market.

Consumers in this type of market have full knowledge of the goods being
sold. They are aware of the prices charged on them and the product branding.
In the real world, the pure form of this type of market structure rarely exists.
However, it is useful when comparing companies with similar features. This
market is unrealistic as it faces some significant criticisms described below.

 No incentive for innovation: In the real world, if competition exists and


a company holds a dominant market share, there is a tendency to
increase innovation to beat the competitors and maintain the status
quo. However, in a perfectly competitive market, the profit margin is
fixed, and sellers cannot increase prices, or they will lose their
customers.
 There are very few barriers to entry: Any company can enter the
market and start selling the product. Therefore, incumbents must stay
proactive to maintain market share.
2.  Monopolistic Competition

Monopolistic competition refers to an imperfectly competitive market with the


traits of both the monopoly and competitive market. Sellers compete among
themselves and can differentiate their goods in terms of quality and branding
to look different. In this type of competition, sellers consider the price charged
by their competitors and ignore the impact of their own prices on their
competition.

When comparing monopolistic competition in the short term and long term,
there are two distinct aspects that are observed. In the short term, the
monopolistic company maximizes its profits and enjoys all the benefits as a
monopoly.

The company initially produces many products as the demand is high.


Therefore, its Marginal Revenue (MR) corresponds to its Marginal Cost (MC).
However, MR diminishes over time as new companies enter the market with
differentiated products affecting demand, leading to less profit.

3.  Oligopoly

An oligopoly market consists of a small number of large companies that sell


differentiated or identical products. Since there are few players in the market,
their competitive strategies are dependent on each other.

For example, if one of the actors decides to reduce the price of its products,
the action will trigger other actors to lower their prices, too. On the other
hand, a price increase may influence others not to take any action in the
anticipation consumers will opt for their products. Therefore, strategic
planning by these types of players is a must.

In a situation where companies mutually compete, they may create


agreements to share the market by restricting production, leading to
supernormal profits. This holds if either party honors the Nash equilibrium
state and neither is tempted to engage in the prisoner’s dilemma. In such an
agreement, they work like monopolies. The collusion is referred to as cartels.

4.  Monopoly

In a monopoly market, a single company represents the whole industry. It has


no competitor, and it is the sole seller of products in the entire market. This
type of market is characterized by factors such as the sole claim to ownership
of resources, patent and copyright, licenses issued by the government, or high
initial setup costs.
All the above characteristics associated with monopoly restrict other
companies from entering the market. The company, therefore, remains a
single seller because it has the power to control the market and set prices for
its goods.

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy