Market structure

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Types

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28.11.2020

Market structure - Wikipedia

https://en.wikipedia.org/wiki/Market_structure

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soft drinks, clothing as they all are homogenous products with many buyers and sellers, no to low

entry barriers but are different from each other due to quality, taste, branding. Firms have partial

control over the price as they are not price takers (due to differentiated products) or Price Maker

(as there are many buyers and sellers). 

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Oligopoly, refers to market structure where only small number of firms operate together control

the majority of the market share. Firms are neither price takers or makers. Firms tend to avoid

price war by following price rigidity. They closely monitor the prices of their competitors and

change prices accordingly. Oligopoly firms focus on quality and efficiency of their products to

compete with other firms. Example: Network providers

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 ( Entry barriers, Small number of sellers,

many buyers, products can be homogenous or differentiated). Three types of oligopoly:

Duopoly, a special case of an oligopoly where two firms operate and have power over the

market.

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 Example: Aircraft manufactures: Boeing and Airbus

Monopsony, when there is only a single buyer in a market. Example: Labour

Oligopsony, a market where many sellers can be present but meet only a few buyers.

Example: Cocoa producers

Monopoly, where there is only one seller of a product or service which has no substitute. The firm

is the price maker as they have control over the industry. There are high barriers to entry.

Example: Google

Natural monopoly, a monopoly in which economies of scale cause efficiency to increase

continuously with the size of the firm. A firm is a natural monopoly if it is able to serve the

entire market demand at a lower cost than any combination of two or more smaller, more

specialized firms.

Or natural obstacles, such as the sole ownership of natural resources, De beers was a

monopoly in the diamond industry for years.

The imperfectly competitive structure is quite identical to the realistic market conditions where some

monopolistic  competitors,  monopolists,  oligopolists,  and  duopolists  exist  and  dominate  the  market

conditions. The elements of Market Structure include the number and size of sellers, entry and exit

barriers, nature of product, price, selling costs.

Competition is useful because it reveals actual customer demand and induces the seller (operator) to

provide service quality levels and price levels that buyers (customers) want, typically subject to the

seller's  financial  need  to  cover  its  costs.  In  other  words,  competition  can  align  the  seller's  interests

with  the  buyer's  interests  and  can  cause  the  seller  to  reveal  his  true  costs  and  other  private

information.  In  the  absence  of  perfect  competition,  three  basic  approaches  can  be  adopted  to  deal

with  problems  related  to  the  control  of  market  power  and  an  asymmetry  between  the  government

and  the  operator  with  respect  to  objectives  and  information:  (a)  subjecting  the  operator  to

competitive  pressures,  (b)  gathering  information  on  the  operator  and  the  market,  and  (c)  applying

incentive regulation.

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