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Types of Market Structures

There are various market structures that characterize economies including perfect competition, monopolistic competition, oligopoly, and monopoly. Perfect competition involves a large number of small sellers and buyers trading homogeneous goods, while monopolistic competition involves similar but differentiated products. Oligopoly consists of a few dominant firms that may cooperate or compete to maximize profits. A monopoly grants a single firm total control over the market and the ability to set prices without competition.

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113 views2 pages

Types of Market Structures

There are various market structures that characterize economies including perfect competition, monopolistic competition, oligopoly, and monopoly. Perfect competition involves a large number of small sellers and buyers trading homogeneous goods, while monopolistic competition involves similar but differentiated products. Oligopoly consists of a few dominant firms that may cooperate or compete to maximize profits. A monopoly grants a single firm total control over the market and the ability to set prices without competition.

Uploaded by

Sneha Venkat99
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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MARKET STRUCTURES

A variety of market structures will characterize an economy. Such market structures essentially
refer to the degree of competition in a market. There are other determinants of market structures
such as the nature of the goods and products, the number of sellers, number of consumers, the
nature of the product or service, economies of scale etc.

1) PERFECT COMPETITION
In a perfect competition market structure, there are a large number of buyers and sellers. All the
sellers of the market are small sellers in competition with each other. There is no one big seller
with any significant influence on the market. All the firms in such a market are price takers.
 The products on the market are homogeneous, i.e. they are completely identical
 All firms only have the motive of profit maximization
 There is free entry and exit from the market, i.e. there are no barriers
 And there is no concept of consumer preference

2] MONOPOLISTIC COMPETITION

This is a more realistic scenario that actually occurs in the real world. In monopolistic competition,
there are still a large number of buyers as well as sellers. But they all do not sell homogeneous
products. The products are similar but all sellers sell slightly differentiated products.
For example, the market for cereals is a monopolistic competition. The products are all similar but
slightly differentiated in terms of taste and flavors. Another such example is toothpaste.
3) OLIGOPOLY
In an oligopoly, there are only a few firms in the market. While there is no clarity about the
number of firms, 3-5 dominant firms are considered the norm. So in the case of an oligopoly, the
buyers are far greater than the sellers.
The firms in this case either compete with another to collaborate together, They use their market
influence to set the prices and in turn maximize their profits. So the consumers become the price
takers. In an oligopoly, there are various barriers to entry in the market, and new firms find it
difficult to establish themselves.
4] MONOPOLY
In a monopoly type of market structure, there is only one seller, so a single firm will control the
entire market. It can set any price it wishes since it has all the market power. Consumers do not
have any alternative and must pay the price set by the seller.

Monopolies are extremely undesirable. Here the consumer looses all their power and market
forces become irrelevant. However, a pure monopoly is very rare in reality.

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