Market Structure: Types of Market

What is Market?

Ans- A Market is created whenever potential sellers of a good or service are brought into contact with potential buyers and a means of exchange is available.

Market Structure

Types of Market:-

Following are the different types of market –

1)      Perfect Competition.

2)      Monopoly.

3)      Monopsony Market.

4)      Bilateral Monopoly.

5)      Monopolistic Competition.

6)      Oligopoly.

 

1) Perfect Competition:-  A model of industrial structure in which a large number of small firms compete in the supply of a single product.

Features of Perfect Competition:

a)      Large number of buyers and sellers:- There are so many buyers and sellers so that no individual buyer or seller can influence the price of the commodity in the market. He can sell whatever output he produces at the given price (i.e. price is constant). So an individual seller is a price taker.

b)      Homogeneous product:- Firms in the perfectly competitive market produce homogeneous products. Homogeneity of a product implies that one unit of a product is a perfect substitute for another.

c)       Free entry and exit of firms:- In a perfectly competitive market there are no barriers to entry or exit of firms.

d)      Perfect mobility of resources:- The factors of production can move easily from one firm to another.

e)      Perfect information or knowledge:- Each buyer and seller have complete information.

f)       Profit maximization:- Each seller has profit maximization motive.

Monopoly:- Monopoly is a market structure in which there is only one supplier. For example: railway, post, telegraph.

Features of Monopoly:

a)      A Single seller:- There is only one seller or producer of commodity.

b)      No close substitute goods:- There are no close substitutes for the commodity produced by the monopolist. Thus he is a price maker.

c)       Barriers to entry:- There are significant barriers to entry.

Types of Monopoly:

a)      Pure Monopoly:- When a single seller produces such a product which has neither a near nor a remote substitute.

b)      Simple Monopoly:- When a single seller produces such a product which has either a near or a remote substitute.

c)       Discriminating Monopoly:- This is a market structure where the monopolist charges different prices to different consumers for the same good or service at the same time.

Price discrimination is possible under specific conditions which are as follows:-

a)      Existence of two or more than two markets.

b)      Existence of different elasticities of demand in different markets.

c)       No possibility of resale.

d)      Full control over the supply.

Monopsony Market:- In this market there exists one buyer and large number of sellers.

Bilateral Monopoly:- It is a market consisting of single seller and single buyer.

Monopolistic Competition:

Monopolistic Competition is the form of market in which there are large number of sellers of a particular product, but each seller sells somewhat differentiated product.

Example: Detergents, Mobile, TV sets.

Features of Monopolistic Competition:

a)      Large number of buyers and sellers:- In the monopolistic competition the number of sellers is large, but it is not unusually large.

b)      Product differentiation:- The products of the sellers are differentiated but are close substitutes of one another. This gives the seller some degree of monopoly power, which he can exploit that is why firm faces an elastic demand curve.

c)       Free entry and exit of firms:- Monopolistic competition like perfect competition is characterized by free entry and free exit.

d)      Selling Cost:- A firm under monopolistic competition incurs selling cost to increase the demand for its product. Examples of selling cost are advertisement, window displays.

Oligopoly: Oligopoly is defined as a market organization in which there are a few sellers of the homogenous or differentiated products.

Example:- OPEC, cold drinks etc.

 Features of Oligopoly:

a)      Few sellers.

b)      Mutual interdependence:- This is the only feature which sets oligopoly apart from other market structures. It means that price and output decisions of one firm affects the similar decisions of the other firms.

 

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