The Market Structures
Characteristics of various market structures
| Market structure | Characteristics |
| Perfect Competition |
A large number of sellers and buyers in the market Entry and exit into the market are unrestricted. All parties involved in the market have perfect knowledge of prices and changing technology. All firms sell and buy similar products. Availability of affordable and efficient communication and transportation facilities. |
| Monopolistic Competition |
There are large numbers of buyers and sellers but less in comparison to the perfect competition. Firms are allowed unlimited entry and departure from the market. Sellers and buyers lack perfect knowledge of the prices. There is product differentiation. Each firm has a different expenditure and selling cost which arise as a result of sellers promoting their products to guarantee maximum profits. Elasticity in demand is prominent since sellers have to decrease their prices to sell more goods and services. There is less mobility in the factors of production. |
| Oligopoly |
Market domination by small number of large firms which differ in size ( Ciliberto, Murry & Tamer, 2016 ). There is a significant restriction in the entry into the market due to the high cost of production and advertisement. Businesses deal in both differentiated and uniform products Firms in this market interdepend on each other to make a business decision. The firms’ use of advertising as a significant tool for improving sales hence increasing profits. Firms are always in constant competition since they sell both differentiated and homogeneous. Every firm abides by their set prices thus creating price rigidity which avoids price wars in the industry that may lead to losses. |
| Monopoly |
Consists of a vast number of buyers but only one seller. There is an absolute restriction to entry and exit into the market. The firm creates specialised and unique product making it difficult for any other firm to produce. The sellers determine the market price since the product has no close substitute. |
Firms around the world belong in different market structures. For instance, Java Coffee shop operates under a monopolistic market because of the availability of numerous buyers and sellers and the firm determines its prices based on the production cost, products and changes in the market price. Example of companies under oligopoly market is the auto manufacturing industry such as Ford and GMC which make up a large percentage of vehicle production in the US. They are less in numbers but huge and have a large number of buyers. Apple Inc. is a monopoly since they are the sole producer of ios (operating system) that is used in apple phones and mac book computers. In the real world, a Perfect competition market structure is hardly achievable. But what comes close to perfect competition is foreign exchange bureau such as Travelex. They are considered an ideal competition because of many buyers and seller and trade in homogeneous products such as dollars, euros and pounds.
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The marginal analysis determines marginal cost (MC) and marginal revenue (MR). A company will only make a maximum profit if MC and MR are equal. This will determine the adequate prize per output of a product without affecting demand and supply.
Under a monopoly market best price is determined where MC=MR thus achieving the equilibrium price. Considering the seller is the sole producer in the industry, any additional marginal revenue generated while cost reduces ensures the firm continues making a profit( Manesh & Karimani, 2017 ).
When the quantity of demand equals that of supply, it indicates the achievement of the equilibrium point. The intersection point between the demand and supply curve represents the equilibrium where maximum profit and output is achievable.
The entity sets a specific price after determining other competitors’ prices and proceeds with production until its marginal cost equals the marginal revenue hence maintaining maximum profits.
Monopolistic Competition
In the monopolistic market competition, the equilibrium price is attained when the MC=MR. Any profit made in the above equilibrium point represent supernormal profits profit in the short run. As other companies join the industry, the marginal gain reduces thus the company only achieves ordinary profit leading to a decrease in prices.
References
Ciliberto, F., Murry, C., & Tamer, E. T. (2016). Market structure and competition in airline markets.
Manesh, M. S., & Karimani, F. (2017). Differences between Monopoly and Perfect Competition in Providing Public Transportation (Case Study: Lane No. 10 and 96 of Mashhad Bus System). Int J Econ Manag Sci , 6 (416), 2.
