1. WHAT IS MARKET?
The term “market” refers to a particular place where goods are purchased and
sold. But, in economics, market is used in a wide perspective. In economics, the
term “market” does not mean a particular place but the whole area where the
buyers and sellers of a product are spread.
WHAT IS MARKET STRUCTURE?
It is therefore understood as those characteristics of a
market that influence the behaviour and the results of the
firms working in that market
Determinants:
Determinants of market structure are:
(1) The number and nature of sellers.
(2) The number and nature of buyers.
(3) The nature of the product.
(4) The conditions of entry into and exit from the market.
(5) Economies of scale.
2. Perfect Competition:
•Perfect competition describes a market structure, where a large number
of small firms compete against each other.
•In this scenario, a single firm does not have any significant market
power.
•As a result, the industry as a whole produces the socially optimal level
of output, because none of the firms can influence market prices.
Several assumptions for perfect competition :
(1) all firms maximize profits
(2) there is free entry and exit to the market,
(3) all firms sell completely identical (i.e., homogenous) goods,
(4) there are no consumer preferences.
Characteristics:
•A large number of buyers and sellers.
•Sellers sell identical products.
•Each buyer and seller acts independently.
• Sellers and buyers are reasonably well-informed about products and
prices.
•Competitors are free to enter into the market, conduct business, or exit.
•Firms have no influence over the market price since the individual
firm’s production is an insignificant part of the entire market.
• Market demand and market supply determine the market price.
• The demand for a firm’s product is perfectly elastic.
3. Monopoly
A monopoly refers to a market structure where a single firm controls the
entire market. In this scenario, the firm has the highest level of market
power, as consumers do not have any alternatives. As a result,
monopolies often reduce output to increase prices and earn more profit.
Assumptions for monopolies:
(1) the monopolist maximizes profit,
(2) it can set the price,
(3) there are high barriers to entry and exit,
(4) there is only one firm that dominates the entire market.
From the perspective of society, most monopolies are usually not
desirable, because they result in lower outputs and higher prices compared
to competitive markets. Therefore, they are often regulated by the
government.
Characteristics:
•Profit Maximiser: Maximizes profits.
•Price Maker: Decides the price of the good or product to be sold.
•High Barriers: Other sellers are unable to enter the market.
•Single seller: In a monopoly, there is one seller of the good, who
produces all the output. Therefore, the whole market is being served by a
single company, and for practical purposes.
•Price Discrimination: A monopolist can change the price or quantity of
the product.
4. Oligopoly
•A Oligopoly is also known as the competition among law. The word
Oligopoly is made up of Oligos + Pollen. Oligos mean few and Pollen
means to sell.
•It is one of the kinds of Imperfect competition. Such market structure is
found when the number of sellers is few.
•It is a market situation in which the number of sellers dealing in a
homogeneous or differentiated product in small.
•Thus, When oligopoly firm sells a homogeneous product it is called
Homogeneous Oligopoly.
•Whereas when a firm of an Oligopoly industry sale differentiated the
product, It is called Heterogeneous Oligopoly. It is also known as
differentiated Oligopoly.
Characteristics:
•Profit maximization conditions
•They are price setters rather than price takers.
•Barriers to entry are high
•There are so few firms that the actions of one firm can influence the
actions of the other firms
•It can retain long run abnormal profits. High barriers of entry prevent
side-line firms from entering market to capture excess profits.
•Product may be homogeneous or differentiated.
•The distinctive feature of an oligopoly is interdependence
•Tend to compete on terms other than price.
5. Monopolistic Competition:
•Monopolistic competition also refers to a market structure, where a large
number of small firms compete against each other.
•The firms in monopolistic competition sell similar, but slightly
differentiated products. That gives them a certain degree of market power,
which allows them to charge higher prices within a range.
Assumptions:
(1) all firms maximize profits
(2) there is free entry, and exit to the market,
(3) firms sell differentiated products
(4) consumers may prefer one product over the other.
Now, those assumptions are a bit closer to reality than the ones we looked
at in perfect competition. However, this market structure no longer results
in a socially optimal level of output because the firms have more power
and can influence market prices to a certain degree.
Characteristics
• Large Number of Sellers and Buyers.
• Differentiated Products: products of sellers are different in many
respects.
• Free Entry and Exit: Implies that under monopolistic competition there
are no restrictions.
• Restricted Mobility of Factors of Production:
• If the prices of products are higher, then the buyers would switch to
other sellers due to close substitutability of products. In such a
scenario, the organization would not be able to sell more.
6. Monopsony:
•A monopsony is either a market where only one buyer exists, or where
a single buyer dominates the market. We often refer to it as a buyer’s
monopoly. The term refers to just the number of buyers. In this type of
market, there may be many suppliers.
•The monopsonist can decide prices and product description.
• They can also dictate terms regarding delivery dates.
•Some people say that monopsony is a back-to-front monopoly.
•Monopsony may also refer to the job market, i.e., one where a single
entity is a town’s largest employer.
•According to the Financial Times’ glossary of terms, a monopsony, by
definition, exists:
“When a single buyer controls the market for a particular good or service,
in essence setting price and quality levels, normally because without that
buyer there would not be sufficient demand for the product to survive.”
Characteristics:
Monopsony in the labour market, is said to exist when there is single buyer.
• The firm or employer hires a large portion of the total employment of a
certain type of labour.
• The mobility of labour is very much limited either geographically or in
terms of skills of offer.
• The monopsonist faces imperfect competition in the labor market but
perfect competition in the product market.
•The single buyer faces a large number of workers who are unorganized or
non-unionized.
