Market structures (Monopoly, Oligopoly)

A continuum of Market Structures

The relationship between individual firms and the relevant market as a whole is referred to as the industry’s market structure and depends upon:

1. The number and relative size of firms in the industry.
2. The similarity of the products sold by the firms of the industry; that is, the degree of product differentiation.
3. The extent to which decision making by individual firms is independent, not interdependent or collusive.
4. The conditions of entry and exit. (McGuigan, Moyer, and Harris, 2011)

Four specific market structures are often distinguished:

-       Pure competition

-       Monopolistic competition

-       Oligopoly  and

-       Monopoly (McGuigan, Moyer, and Harris, 2011)

Pure competition:

A market structure characterized by a large number of buyers and sellers of a homogeneous (nondifferentiated) product. Entry and exit from the industry is costless, or nearly so. Information is freely available to all market participants, and there is no collusion among firms in the industry.

Monopolistic competition:

A market structure characterised by-

-       Many small sellers (as under perfect competition, the exact number of firms cannot be stated.)

-       A differentiated product (Creating  real or apparent differences between goods and services. It is a close but not perfect substitutes), and

-       Easy market entry and exit (Unlike a monopoly, firms in a monopolistically competitive market face low barriers to entry. But entry into a monopolistically competitive is not quite as easy as entry into a perfectly competitive market. Because monopolistically competitive firms sell differentiated products, it is somewhat difficult for new firms to become established). (Tucker,2009)

Oligopoly :

A market structure in which the number of firms is so small that the actions of any one firm are likely to have noticeable impacts on the performance of other firms in the industry. It is a market structure charactiresed by- few sellers, either a homogeneours or differentiated product, and difficult market entry.

Monopoly: 

A market structure characterised by- a single seller, a unique product and impossible entry into the market. Unlike perfect competition, there are no close substitutes for the monopolist’s product.

Monopoly means that a single firm is the industry. One firm provides the total supply of the product in a given market. Local monopolies are more common real-world approximations of the model than national or world market monopolies. For example, campus bookstore, London transports.

As there are no close substitute products, the monopolist faces little or no competition. In the case of monopoly, extremely higher barriers make it very difficult or impossible for new firms to enter an industry. (Tucker,2009; McGuigan, Moyer, and Harris, 2011)

Bibliography:

McGuigan, J., Moyer, R. and Harris, F. (2011), Managerial Economics: Applications, Strategy and Tactics ,12^th ed, USA: South-western, Cengage Learning

Tucker, I. B. (2009), Survey or Economics, 6^th ed, USA: Cengage Learning