Market Structure is defined as the number of firms producing identical products which are homogeneous. In other words, it is the factors that influence the interaction of buyers and sellers in a market, and also determines changes in price by how different levels of production and selling processes interact together.
Market structures are important both to firms and consumers alike, because it influences how they (firms and consumers operating within the market or industry) behave in terms of pricing, supply, entry & exit, competition and efficiency. Currently, there are four types of market structures practiced in the world. These are:
1. Perfect Competition
2. Imperfect or Monopolistic Competition
These market structures are as a result of the different degrees of competition within the industry. Each structure is differentiated by freedom of entry and exit, number of buyers and sellers, product differentiation, etc. However, each market structure has got its advantages and disadvantages. Below are some of the advantages and disadvantages of each market structure. Perfect Competition
In a perfect competition market structure, there is freedom of entry and exit, products are homogeneous, there is a large number of buyers and sellers, and in this market structure firms are price takers. Examples include Financial markets and Agricultural markets. Advantages
1. There is most efficient use of resources, due to a high degree of competition 2. The consumer benefits
3. Price is usually equal to marginal cost
4. Normal profit is made in the long run (i.e. over time)
5. Firms operate at Maximum efficiency.
1. With introduction of a new idea, firms can make abnormal profit over a short term period
An oligopoly market has a small number of firms, which are all able to make supernormal profits. The advantages are that these companies have the resources to reduce the price of their...
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