Market Structure
In economics, market structure depends on the number of organizations making a particular type of product.
Types of Market Structures are as follows –
- Monopoly
- Oligopoly
- Monopsony
- Oligopsony
- Perfect Competition
Monopoly– exists when a specific person or enterprise is the only supplier of a particular commodity. Thus, monopolies are characterized by lack of competition in the particular product category. This gives the enterprise substantial power over the prices. Size is not a characteristic of a monopoly. A small organization can also have power to alter prices in a small industry.
What factors make a monopoly –
- Economic barriers
- Economies of scale
- Capital needed
- No substitute goods
- Control of natural resources
Characteristics –
- A monopoly maximizes profit
- Decides price
- High barriers to enter the market
- Single seller – The whole market is served by a single player
- Price Discrimination is a common phenomenon in a monopoly as there are no substitutes available.
Oligopoly – is an industry which is dominated by a small number of organizations known as oligopolists. The decision of one firm are influenced by the decisions of the other firms. All strategies adopted by a firm in this market structure take into account the anticipated responses of other firms.
Characteristics-
- Oligopoly maximizes profit
- Oligopolies are price setters
- Barriers to entry are again high
- Few major sellers
- The firms are interdependent as every firm commands very high market share and have the ability to completely change the market condition.
- Price wars are seldom seen in Oligopolies
- Examples – The petroleum and gas industry in India, Telecommunication industry in India.
Other examples are – Boeing and Airbus, Nvidia and AMD, Coca-Cola and PepsiCo et cetera
Duopoly – Duopoly is a type of Oligopoly where only two sellers exist in the market. Examples are Visa and Mastercard, Apple and Microsoft, DC Comics and Marvel Comics.
Monopsony – it is a situation in which there is only one seller and which interacts with many sellers. It is also a kind of monopoly as the buyer in this case has the power of quoting price to the sellers at which the buyer intends to buy the product or service.
Oligopsony – It is a market structure in which the number of sellers are large while buyers are very less.
One example of an oligopsony in the world economy is cocoa, where three firms (Cargill, Archer Daniels Midland, and Barry Callebaut) buy the vast majority of world cocoa bean production, mostly from small farmers in third-world countries.
Perfect Competition – There are conditions which define a perfect market –
- A large number of sellers and buyers
- Perfect information – All consumers and producers know all prices of products and utilities each person would get from owning each product.
- Homogenous products – The products are perfect substitutes for each other.
- Minimum barriers to entry or exit
- All participants are price takers
- Lack of economies of scale ensures that there will always be a sufficient number of firms in the industry.
