A market is a place were buying and selling
of goods and services takes place. There
are various ways markets are structured.
Market structure refers to the
organizational nature of competitiveness in
the market. What this means is that market
structure involves the characteristics which
affects the prices and competition level of
the market.
Basically, there are 4 types of market
structures. It is also important to note that
not all this type of market structures exist
in reality. Some of them are theoretical
concept. Though, they are important
critically because it helps to illustrate the
decisions that competitive firms make. So
they will help you to understand the
economic principle of decision making in
the market.
Below are the four basic types of market
structures:
1. The perfect competitive market
The perfect competitive market also known
as the perfect competition is the type of
market structure were a large number of
small firms compete with each other. In
this type of market, no firm has the sole
power to dictate or influence market
prices. All firms has equal level of
competing against each other.
Features of perfect competitive market
Many buyers and sellers
Free entry and exit
All firms sell identical products
(Homogeneity of product)
All firms maximize profit
There are no consumer preference
2. Monopolistic competition
The monopolistic competition is almost
similar to the perfect competitive market.
The monopolistic structure is the type of
market with a large number of small firms
competing against each other. The firms
here sell similar but slightly different
products. This enables some firms to either
increase or decrease their prices based on
the slight differences in their product
compare to others.
Features of monopolistic competition
All firms maximize profits
Many buyers and sellers
Free entry and exit
Firms sell different products
3. Oligopoly
This is the type of market structure that is
dominated by small number of firms. In this
case, there is limited competition. None of
the firms can keep the others from
influencing market prices.
Features of Oligopoly
All firms maximize profits
Prices can be set by oligopolies
No free entry and exit
Product might be homogenous of
differentiated
Only small firms dominate the market
4. Monopoly
This is the type of market structure were
only one firm controls the entire market.
The single firm has the highest level of
market power. Monopolist often reduces
output in order to increase prices to earn
more profits.
Features of Monopoly
Profit maximization
Price setting by the monopolist
High barriers to entry and exit
Only one seller and many buyers.
