Markets and market structures

The following assumptions are made when we talk about monopolies: 1 the monopolist maximizes profit, 2 it can set the price, 3 there are high barriers to entry and exit, 4 there is only one firm that dominates the entire market.

Markets and market structures

So the consumers become the price takers. The relationship between producers or sellers. Monopsony, when there is only one buyer in a market. These assumptions are as follows, The products on the market are homogeneous, i. Perfect information - All consumers and producers are assumed to have perfect knowledge of price, utility, quality and production methods of products. Number of firms: "Few" — a "handful" of sellers. By doing so, they can use their collective market power to drive up prices and earn more profit. These are the price setters. Buyers and sellers are referred to as price takers rather than price influencers. Bertrand Competition. Zero entry and exit barriers — A lack of entry and exit barriers makes it extremely easy to enter or exit a perfectly competitive market. Therefore, they are often regulated by the government. 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. So the sellers become the price setters to a certain extent. The slight differences between the products also creates imperfect information regarding quality and price.

As a rule of thumb, we say that an oligopoly typically consists of about dominant firms. There are naturally occurring monopolies and those created through legislation, such as state-legislated liquor stores.

market structure characteristics

The main aspects that determine market structures are: the number of agents in the market, both sellers and buyers; their relative negotiation strength, in terms of ability to set prices; the degree of concentration among them; the degree of differentiation and uniqueness of products; and the ease, or not, of entering and exiting the market.

Non-Price Competition: Oligopolies tend to compete on terms other than price. Monopolistic competition markets are a hybrid of two extremes, the perfectly competitive market and monopoly.

There are other determinants of market structures such as the nature of the goods and productsthe number of sellers, number of consumers, the nature of the product or service, economies of scale etc.

components of market structure

This market is considered to be unrealistic but it is nevertheless of special interest for hypothetical and theoretical reasons. High barriers of entry prevent sideline firms from entering market to capture excess profits.

Market structure in managerial economics

Oligopsonies A market is a set of buyers and sellers, commonly referred to as agents, who through their interaction, both real and potential, determine the price of a good , or a set of goods. There are certain assumptions when discussing the perfect competition. In a monopolistically-competitive market, each firm's effects on market conditions is so negligible as to be safely ignored by competitors. The correct sequence of the market structure from most to least competitive is perfect competition, imperfect competition, oligopoly and pure monopoly. Meanwhile, monopolistic competition refers to a market structure, where a large number of small firms compete against each other with differentiated products. That results in a state of limited competition. About the Author Eshna Eshna is a writer at Simplilearn. Key Summary on Market Structures Traditionally, the most important features of market structure are: The number of firms including the scale and extent of foreign competition The market share of the largest firms measured by the concentration ratio — see below The nature of costs including the potential for firms to exploit economies of scale and also the presence of sunk costs which affects market contestability in the long term The degree to which the industry is vertically integrated - vertical integration explains the process by which different stages in production and distribution of a product are under the ownership and control of a single enterprise. 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. When the profits are attractive, producers freely enter the market. Entry and exit: Barriers to entry are high.
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Market Structure and Competition