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In economics, market structure (also known as the number of firms producing identical

products).

Monopolistic competition, also called competitive market, where there are a large number
of firms, each having a small proportion of the market share and slightly differentiated
products.

Oligopoly, in which a market is dominated by a small number of firms that together


control the majority of the market share.

Duopoly, a special case of an oligopoly with two firms.

Oligopsony, a market where many sellers can be present but meet only a few buyers.

Monopoly, where there is only one provider of a product or service.

Natural monopoly, a monopoly in which economies of scale cause efficiency to increase


continuously with the size of the firm. A firm is a natural monopoly if it is able to serve the
entire market demand at a lower cost than any combination of two or more smaller, more
specialized firms.
Monopsony, when there is only one buyer in a market.
Perfect competition is a theoretical market structure that features unlimited contestability
(or no barriers to entry), an unlimited number of producers and consumers, and a perfectly
elastic demand curve.

The imperfectly competitive structure is quite identical to the realistic market conditions where
some monopolistic competitors, monopolists, oligopolists, and duopolists exist and dominate the
market conditions. The elements of Market Structure include the number and size distribution of
firms, entry conditions, and the extent of differentiation.
These somewhat abstract concerns tend to determine some but not all details of a specific
concrete market system where buyers and sellers actually meet and commit to trade. Competition
is useful because it reveals actual customer demand and induces the seller (operator) to provide
service quality levels and price levels that buyers (customers) want, typically subject to the
sellers financial need to cover its costs. In other words, competition can align the sellers
interests with the buyers interests and can cause the seller to reveal his true costs and other
private information. In the absence of perfect competition, three basic approaches can be adopted
to deal with problems related to the control of market power and an asymmetry between the
government and the operator with respect to objectives and information: (a) subjecting the
operator to competitive pressures, (b) gathering information on the operator and the market, and
(c) applying incentive regulation.[1]

Market Structure
Perfect Competition
Monopolistic
competition
Oligopoly
Oligopsony
Monopoly
Monopsony

Quick Reference to Basic Market Structures


Seller Entry
Seller
Buyer Entry
Barriers
Number
Barriers
No
Many
No

Buyer
Number
Many

No

Many

No

Many

Yes
No
Yes
No

Few
Many
One
Many

No
Yes
No
Yes

Many
Few
Many
One

The correct sequence of the market structure from most to least competitive is perfect
competition, imperfect competition, oligopoly, and pure monopoly.
The main criteria by which one can distinguish between different market structures are: the
number and size of producers and consumers in the market, the type of goods and services being
traded, and the degree to which information can flow freely.

[edit] References
1.

^ Body of Knowledge on Infrastructure Regulation Market Structure: Introduction.

[edit] See also

Economics

Microeconomics

Macroeconomics

Industrial organization

Herfindahl index

List of marketing topics

List of management topics

List of economics topics

List of accounting topics

List of finance topics

The market form can equally be known to an extent by the barriers on entry and exit. It is to be
noted that the Perfectly Competitive market, there exists free entry and exit; this applies to
prospective/existing buyers and sellers. Though, this is not the case with the Imperfect market
structure.

Module-5 :
Module-5 Market Structure Analysis

Characteristics of Perfect Competition :


Characteristics of Perfect Competition Refers to the market structure where competition among the sellers and buyers prevails in its
most perfect form The price is determined by the forces of market, i.e. aggregate market demand and aggregate market supply
conditions Each firm produces such a small fraction of total industry output that an increase or decrease in its own output will have
no perceptible influence up on total supply and hence price Individual sellers have no control over the price at which they sell Every
participant whether a buyer or seller is a price taker

Supply and Demand in Perfect Competition :


Supply and Demand in Perfect Competition Under perfect competition there is a single ruling market price, the equilibrium price,
determined by the interaction of forces of total demand and total supply in the market Thus both the market or equilibrium price and
volume of production in a market under perfect competition are determined by the intersection of total demand and total supply

Equilibrium of the firm under Perfect Competition :


Equilibrium of the firm under Perfect Competition Accepting profit maximization as the fundamental business motive of a rational
firm, it can be stated that the firm is in equilibrium, when it fulfills its motive It means the firm is in equilibrium when it produces that
level of output which maximizes profit When total revenue is greater than total cost, a firm earns profit, in the accounting sense. But
economists make a distinction between, normal profits and supernormal profits

Equilibrium of the Firm in the Short Run :


Equilibrium of the Firm in the Short Run When the firm attains a short run equilibrium position, it does not necessarily imply, that it
makes excess or supernormal profits Its profitability depends up on the conditions of average revenue and average cost

Equilibrium of the Firm in the Long Run :


Equilibrium of the Firm in the Long Run In the long run, all firms have identical costs and because they are at liberty to leave the
industry, they will all be earning normal profits In the long run, under conditions of perfect competition, every firm in the industry and
the industry as a whole will be in full equilibrium and every firm will be producing the optimum output

Monopoly :
Monopoly Monopoly is a market structure where there is only one seller who controls the entire market supply, as there are no close
substitutes for his product and there are barriers to the entry of rival producers The monopoly market model is the opposite extreme
of perfect competition

Features of Monopoly :
Features of Monopoly The monopolist is the sole producer in the market. Thus, under monopoly, the firm and industry are identical
There are no closely competitive substitutes for the product. So the buyers have no alternative or choice. They have either to buy
the product or go without it Monopoly is a complete negation of competition A monopolist is a price maker. He can even vary the
price from buyer to buyer. In a perfectly competitive market there is single price, as against under monopoly, there may be
differentials A pure monopolist has no immediate rivals. There are legal, technological, economic or natural obstacles which may
block the entry of new firms A monopolist has absolute control over the market supply, so he can control the price as well as quantity
supplied

Natural Monopolies :
Natural Monopolies In many cases, natural factors create a monopolistic position which is described as natural monopolies For
instance, in many professional services, the natural talent and skill allow some individuals to have monopoly E.g. a surgeon, a
lawyer, an actor, a singer

Price Discrimination :
Price Discrimination Price discrimination is charging of different prices for the same product to different buyers or in different markets
A monopoly firm which adopts the policy of price discrimination is referred to as a Discrimination Monopoly

Types of Price Discrimination :


Types of Price Discrimination Personal discrimination (based on economic status of the buyer) Age discrimination Gender
discrimination Locational discrimination Size discrimination Variation in quality discrimination Special service or comfort Use
discrimination Time discrimination Nature of commodity discrimination

The Concept of Monopolistic Competition :


The Concept of Monopolistic Competition Monopolistic competition refers to the market organization in which there is keen
competition, but neither perfect nor pure, among a large number of producers or suppliers. They have some degree of monopoly
because of their differential products Thus monopolistic competition is a mixture of competition and a certain degree of monopoly
power. In other words, a market with a blending of monopoly and competition is described as monopolistic competition

Major Sectors :
Major Sectors Monopolistic competition is commonly found in many fields in retail, service and manufacturing industries Examples
of retail:- cloth stores, chemists, electrical appliances, grocery etc Service Industry:- restaurants, beauty saloons, health clubs etc
Manufacturing:- shoes, garments, cosmetics, furniture manufacturing etc

Characteristics of Monopolistic Competition-1 :


Characteristics of Monopolistic Competition-1 Large number of sellers No product homogeneity Product differentiation: it is the most
distinguishing feature of monopolistic competition, that product of each seller is branded and identified A firm has a limited degree of
control over the market as a relatively small percentage of total market is shared by individual firms Large number of buyers: unlike
perfect competition, here buying is by choice and not by chance

Characteristics of Monopolistic Competition-2 :


Characteristics of Monopolistic Competition-2 There is free entry for firms Selling costs:- this too is an unique feature. Since
products are differentiated, advertising and sales promotion becomes an integral part of goods marketing. Outlays incurred on this
account are termed as selling costs. This distinguishes it sharply from perfect competition, where there is no need to advertise
products, because goods are homogeneous

Characteristics of Monopolistic Competition-3 :


Characteristics of Monopolistic Competition-3 8. two-dimensional competition:- a)price competition, where firms compete with each
other on the price issue and b) non-price competition, where competition is based on product variation and selling costs The group:since there is no homogeneity of product we cant think of industry. Here the concept of group was introduced, which is a cluster of
firms, producing very related but differentiated goods

Types of Product Differentiation :


Types of Product Differentiation Product differentiation can be classified into two types Quality and characteristic of the product
Conditions relating to the sale of product

Quality and Characteristic of the Product :


Quality and Characteristic of the Product Product differentiation relating to quality and characteristics of the product has wide-scale
dimensions, implying real as well as imaginary differences Real differences could be related to the physical features as well as
functional areas There could be differences in size, design and style, strength, durability, differences in the quality of materials,
chemical compositions, workmanship, cost of inputs etc There may be imaginary differences relating to brand names, colour and
packing. Advertising also sometimes emphasizes the imaginary differences

Conditions Relating to Sale of Product :


Conditions Relating to Sale of Product Product differentiation may be due to the conditions of sale and marketing This is apparent in
many different forms like:- proximity and prestige of the location of business, attitude of the staff, business reputation of the firm,
terms of trade like discounts offered, guarantee, repairs etc