Types of Market Structures

Meaning of Market

A market is a particular place or locality where goods are sold and purchased. Generally, in economics, a particular place is not required, it follows that a place, region, area, etc exist where the contact between the sellers and buyers can take place, and the transaction can be done. So, the two distinguishing features of the market can be:-
  1. The main feature is that market needs not to be a particular place.
  2. Another feature can be that the buyers and sellers should be able to strike a deal about the transaction.

Market structure

Market structure refers to the type of market where producers or firms operate. It indicates how the market is organized. There prevails competitiveness in various forms of market structures which refers to the extent to which the individual firms have the power to influence the market price of the commodity.

Types of market structures

There are two extreme forms of market structures i.e. perfect competition and monopoly. In between them, there are other forms too. So, the types of market structures are:-
  • Perfect Competition 
  • Imperfect Competition:- 
    1. Monopoly 
    2. Monopolistic Competition 
    3. Oligopoly
Perfect competition is a highly competitive form where no firm has the power to influence the prices, while Monopoly is a form where only one producer enjoys a considerable power to influence the prices. The forms are different based on their features.

Factors determining Market Structures

  1. The number of buyers and sellers- All the markets differentiate according to their number of buyers and sellers.
  2. The nature of the product- All the markets differentiate according to the products they produce and sell.
  3. Knowledge about the market- Markets differentiate on the basis of knowledge or the lack of knowledge in a particular market.
  4. Freedom of entry and exit of the firms- Markets also differentiate on the basis of the freedom or restrictions applied to the firms.
  5. Degree of influence over prices- They also differentiate on the basis of the price i.e. their power to influence the prices of the products.

Conclusion

  • The different forms of markets have different features and can be differentiated with each other on some basis. So, the difference between the forms of market structures can be seen as:-
BasisPerfect CompetitionMonopolyMonopolistic CompetitionOligopoly
Number of buyers and sellers A large number of buyers and sellers One seller Fairly large number Few sellers
Nature of product Homogenous products Homogenous products Differentiated products Both
Nature of knowledge Perfect knowledge Some knowledge Some knowledge Some knowledge
Nature of entry and exit Free entry and exit Closed entry Free entry and exit Closed entry
Influence on price Price taker Price maker Price maker Price maker
Slope of demand curve Perfectly elastic Negatively sloped but less elastic Negatively sloped but more elastic Kinked demand curve
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