Market Structures.html
Market Structures
Buyers and sellers come together in markets to exchange goods and services for either money or, in isolated cases, other goods and services. Economists have defined four market structures based primarily on the level of competition:
- Perfect competition
- Monopolistic competition
- Oligopoly
- Monopoly.
In perfect competition, so many companies deal in the same good or service that a single company does not have any influence over the price of the good or service. The only decision companies have to make is how much to supply based on the price determined in the market. There is no perfectly competitive company. However, most agricultural markets provide close approximations of how perfect competition would operate.
This is the most common market structure found in most economies. Here, there are many sellers of similar products differentiated in some way, and entry into and exit from the industry is relatively easy. The best examples are retail firms such as gas stations, fast-food restaurants, and clothing firms.
An oligopoly is a market structure that provides most of the goods in consumer markets. However, a given market has only a few of these companies. An example of an oligopoly would be airlines serving the same route.
In a monopoly, there is only one company in the market and that company has complete control over the price and output level. Monopolies are illegal in most countries, but where they are allowed, they are highly regulated by the government. Examples include electric companies, cable TV companies, and other utility companies.
Most companies do not fit into a single market structure. However, because the four structures have different pricing and output decisions, a company must be aware of the structure that is the best fit.
