Markets Structures
arket structure is best defined as the organisational and other characteristics of a market. We focus on those characteristics which affect the nature of competition and pricing – but it is important not to place too much emphasis simply on the market share of the existing firms in an industry.
In economics, market structure (also known as market form) describes the state of a market with respect to competition. The major market forms are:
1. Perfect competition, in which the market consists of a very large number of firms producing a homogeneous product.
2. Monopolistic competition, also called competitive market, where there are a large number of independent firms which have a very small proportion of the market share.
3. Oligopoly, in which a market is dominated by a small number of firms which own more than 40% of the market share.
4. Oligopsony, a market dominated by many sellers and a few buyers.
5. Monopoly, where there is only one provider of a product or service.
6. Natural monopoly, a monopoly in which economies of scale cause efficiency to increase continuously with the size of the firm.
7. Monopsony, when there is only one buyer in a market.
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 correct sequence of the market structure from most to least competitive is perfect competition, imperfect competition, oligopoly, and pure monopoly.
Forms of imperfect competition include:
Monopoly, in which there is only one seller of a good.
Oligopoly, in which there is a small number of sellers.
Monopolistic competition, in which there are many sellers producing highly differentiated goods.
Monopsony, in which there is only one buyer of a good.
Oligopsony, in which there is a small number of buyers.