Types of Market Structures (Essay Sample)

Types of Market Structures
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Types of market structures
In economics, market structures are theoretical guidelines for producers and suppliers who wish to provide goods and services at profits. Since most markets differ in the nature of commodities that consumers’ desire, market structures provide the possible case scenarios for when suppliers provide commodities to consumers. The four major Market structures are: oligopoly, monopoly, monopolistic and perfect market.
Perfect Competition
Perfect competition structure is the ideal market structure that is free of government interference. In this case the entry of suppliers into the market is free. Due to the free entry of suppliers into the market, a perfectly competitive market is characterized by many suppliers and many buyers. In this case, the high number of suppliers exceeds the variety of goods and services that can be available in the market (Borg, 2009). Hence the competitors in this market structure offer no variety; they provide the same goods and services to the customers. Due to the large number of suppliers, consumers do not owe any loyalty to a product since all producers avail similar commodities. In this market structure, there is no government influence, hence the pricing in the market is influenced by forces of demand and supply and all the firms have to go with the market price or get pushed out of the market (Borg, 2009). It is noteworthy, that there are no high entry barriers to these markets, hence firms only enjoy normal profits in the long run. The effect of international trade in this market is a surplus of commodities in the market, which means some firms may drop out.
Monopolistic Competiton
In its pure form, a monopoly market is only characterized by one supplier of a good or service. In this case, there is no alternative to the good or service in the market. A monopoly market is mainly due to restrictions for entry into the market such as: government control, restricted used of raw materials or high cost of production (Ritternberg, 2008).In this case the supplier in this market can alter the supply in the market and change the market prices. Unlike the perfect completion, this market has high entry barriers, which means the sole supplier enjoys supernormal profits in the long run due to less competition. The elasticity of demand in this market is inelastic since there is only a single supplier of the commodity (Ritternberg, 2008). The effect of international trade in this market structure is the improvement in quality of goods and distribution of income that was enjoyed by the monopolist. An example of a monopoly is the United States postal service.
Monopoly
A monopolistic market structure is a market where there are various suppliers competing, although there is an aspect of monopoly influence. In this market, there are many consumers, but suppliers are not as many hence competition is achieved through product differentiation (Ritternberg, 2008).In this market a firm may alter its prices at any time. Due to the competitiveness in this market elasticity of demand in the market is relatively elastic (Ritternberg, 2008). Due to little entry barriers the suppliers enjoy only normal profits in the long run. The effect of international trade in this market is the pushing out of local firms from the market. Nike Sportswear Company in this case is an example company in a monopolistic market
Oligopoly
It is composed of the few suppliers that cater for a large market. In this case the few suppliers usually base their pricing, production quantity on a certain level that is considered optimum for all firms. Due to high production costs, there are huge barriers to entry of other suppliers (Ritternberg, 2008). This results in high profits of suppliers in the long run. The price elasticity of demand for a firm in oligopoly mark...