GROUP 1
Various Market Structures
What is market?
A market is one of the numerous
infrastructures, systems, institutions,
social relations, and procedures, wherein
buyers and sellers usually interact with
each other to exchange goods and
services.
What is market structure?
Market structure refers to how different industries
are classified and differentiated based on their
degree and nature of competition for services and
goods. 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.
The Four Types Of Market
Structures
Monopolistic
Monopoly
Competition
Oligopoly Perfect Competition
MONOPOLY
A monopoly pertains to a situation wherein there is only a
single company that produces a certain product in the entire
market. Because of that, they have the power or the authority to
manipulate their products, such as minimizing their outputs to put
higher prices in it and to gain more profit. In this situation,
consumers have a lesser benefit, especially when the product is
essential to them, making them buy it despite being expensive.
Monopolies commonly emerge because there is a high barrier to entry and exit in a
particular market. The three main factors that can become the reason for it are the
following.
• Ownership of a fundamental resource - If the key resource is solely owned by a firm, the firm
can limit the access to this source, therefore creating a monopoly.
• Economies of scale – In some sectors, a single firm can sustain products or goods at a lower
price than two or more firms could, resulting in a natural monopoly, which arises even without the
intervention of the government.
• Government Regulations – To suffice the interest of the public, the government usually
restricts market entries in a legal way, which is through copyright laws and patents.
MONOPOLISTIC COMPETITION
When there is a numerous quantity of small firms
competing against each other, it is called a Monopolistic
Competition. However, in this type of market structure,
several companies sell the same product but they have their
differences. Those differences give them market power
which lets them charge higher prices for a product, but is
within a certain range. These key factors can include style,
brand name, location, packaging, advertisement, and pricing
strategies, which became every firm’s basis in marketing.
You can assume the following when
discussing the monopolistic
competition:
• Every firm is a price setter and can
maximize their profit.
• They sell similar yet slightly different
products.
• The consumers can favor a product more
than the other one.
• There are easy entrances and exit in this
market.
PERFECT COMPETITION
Perfect competition is a type of market structure where many
products are similar and may substitute each other since they have
the same features, price and, quality. There are many sellers and
consumers in this type of market with almost the same products.
Moreover, a perfectly competitive market requires few barriers to enter
and it is easy for producers to quit whenever they want. They also
have uniform prices that depend on the demand and supply which
means that the market has full control over implying prices.
Perfectly competitive markets show these characteristics:
• Both the producers and consumers have perfect knowledge without information failures.
The details and information in this market are easily accessible to all participants. Thus,
risk-taking is not necessarily important and the power of an entrepreneur is limited.
• Producers and consumers are making coherent decisions for their benefit. For instance,
producers make decisions to maximize their profits, and consumers make decisions to
maximize their utility.
• There are no hindrances to enter nor exit from this type of market.
• Companies manufacture identical products that are not branded.
• Producers don’t have the power to influence the market price nor the condition.
OLIGOPOLY
An oligopoly is a type of market structure where firms
dominate the market by supplying either similar or
differentiated products. There are only a few companies in this
structure and they have control over price implying. It is also
difficult to enter this market since there are a lot of barriers.
Moreover, participants in oligopolies are price setters rather
than takers. Some examples of oligopoly companies are the
automobile industry, the steel industry, aircraft manufacturing
industry, etc.
Oligopoly markets show these characteristics:
•Entrepreneurs maximize profits.
• Oligopolies set prices rather than take price.
• There are a lot of barriers. It includes government licenses, economies of scale,
patents, and access to expensive and complex technology. Also, some government
policies are favoring the current companies in the industry so it is hard to enter for
beginners.
• Interdependent. Like for example, if one firm changes and decreases its price, it will
significantly affect the other firms.
• Rampant advertising since most companies use national media to promote their
products.
Thanks! Does anyone have questions?
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