3. Perfect Competition
4. Monopolistic Competition
Each of these market structures have unique characteristics, and can be classified according to three factors. The degree of competition, the first factor, is important as it classifies markets into different market structures. It compares the relative sizes of firms, the amount of sellers (vendors) and the barriers of entry to the market. The second factor is pricing strategies. The 'big fish' have high power to set a price, because of their size and influence over the market. On the other hand, a smaller, less powerful business will usually have extremely little or no power to set the price. The final factor to be taken into account when classifying a market structure is the profit of a firm, and their performance compared to others (if applicable).
Every market is classifiable into one of the four market structures: monopoly, oligopoly, perfect competition, and monopolistic competition.
A monopoly is a situation where one firm completely dominates the market. This is exactly the opposite of perfect competition (explained later), and it means that one firm has 100% market share. There can be several circumstances that result in a monopoly.
If only one firm selling a unique product that they have various patents or copyright on, then the company has a monopoly on the market. A monopoly also results when no substitute product is being sold, leaving the consumer able to purchase only the monopolized product. This means that the market has extremely high barriers to the entry of another firm. Monopolies are commonly referred to as 'price...