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    Types of Market Structures

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    jojo chow
    There are four main types of market structures: Perfect competition involves many small companies selling similar products with no influence over prices. Monopolistic competition includes differentiated products where companies consider competitor prices. Oligopoly consists of a small number of large companies that are dependent on each other's pricing strategies. A monopoly is a single company that is the sole seller of a product and can control the market and set prices.

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    Types of Market Structures

    Uploaded by

    jojo chow
    36 views3 pages
    There are four main types of market structures: Perfect competition involves many small companies selling similar products with no influence over prices. Monopolistic competition includes differentiated products where companies consider competitor prices. Oligopoly consists of a small number of large companies that are dependent on each other's pricing strategies. A monopoly is a single company that is the sole seller of a product and can control the market and set prices.

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    There are four main types of market structures: Perfect competition involves many small companies selling similar products with no influence over prices. Monopolistic competition includes differentiated products where companies consider competitor prices. Oligopoly consists of a small number of large companies that are dependent on each other's pricing strategies. A monopoly is a single company that is the sole seller of a product and can control the market and set prices.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    36 views3 pages

    Types of Market Structures

    Uploaded by

    jojo chow
    There are four main types of market structures: Perfect competition involves many small companies selling similar products with no influence over prices. Monopolistic competition includes differentiated products where companies consider competitor prices. Oligopoly consists of a small number of large companies that are dependent on each other's pricing strategies. A monopoly is a single company that is the sole seller of a product and can control the market and set prices.

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    © All Rights Reserved
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    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.

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