Types of market structures: description

2024 Author: Henry Conors | [email protected]. Last modified: 2024-02-12 02:47

In the modern economy, the types of market structures are divided according to the form and degree of freedom. Each type has its own advantages and disadvantages.

The following main types of market structures are distinguished in the economy. The first of these is perfect competition - this is a market in which a huge number of small firms operate. They usually produce the same products. Therefore, they do not have the ability to independently control prices. An example of such markets would be the market for fish, agricultural products, or the securities market. All types of market structures have their own characteristics. Features of Perfect Competition:

1) Ads are useless.

2) There are no barriers for another seller to join the production of similar products.

3) The number of buyers in this market, as well as sellers, is great.

The second type of market structure is monopolistic competition - a market in which small firms produce the same product, but, nevertheless, have the ability to control prices for it. In order for the manufacturer to be able to raise the price of his product, heyou need to outperform your competitors in some way. It could be product quality or customer service. An important role in this is played by the provision of warranty service, the presence of which allows the seller to increase the price of his product. Also, the location can be attributed to the increase in cost, because people will go to a cafe near the house more often than to one that is three blocks further away. In this type of market structure, if there is still a difference from the products of its competitors, it is necessary to give advertising to inform consumers about this.

Classification of market structures is based on the number of firms present in a given market. For example, the third type, that is, an oligopoly, is a market owned by several large firms. This happens because the barriers to entry into this industry are quite high. They are:

1) Huge start-up capital required to start producing goods.

2) Trade secret.

3) Need to comply with copyright or patent law.

4) Mandatory production license.

Prices for goods in an oligopoly are set according to the principle of price leadership. And competition occurs around the consumer properties of goods. Huge amounts of money are spent on advertising. Examples of such markets are: the market for computers, the market for perfumes, cars, oil and phones.

Types of market structures are distinguished based on various features and characteristics. So the fourth type is a monopoly,that is, a market owned by a single seller of a product that has no analogues. This type of market structure is not beneficial to consumers, since the monopolist is not interested in improving the quality of his product and its diversity, besides, he has the opportunity to set inflated prices. Entry to such a market is blocked. Advertising is not obligatory for a monopolist, since everyone already knows about its product.