The 4 Types of Market Structure
Comparison and contrast the 4 types of market structure:
Perfect Competition
Definition
* there are many buyers and sellers, the products are homogeneous and sellers can easily enter and exit from the market
Characteristics
* Large number of buyers and sellers – firms are price takers. * Homogenous or standardized product – the buyers do not differentiate the products of one seller to another seller. * Free of entry and exit into the market. * Role of non-price competition is insignificant. * Perfect knowledge of the market – all the sellers and buyers in perfect competition market will have perfect knowledge of that market.
Monopolistic
Definition * There are large numbers of small sellers selling differentiated products. These products are close substitute and firms have easy entry and exit from the market.
Characteristics
* Large number of buyers and sellers – Each firm produces different or unique products, so they have some control over the prices and follows an independent price-output policy. * Differentiated products – Product differentiation could be through packaging, design, labelling, advertising and brand name. * Free of entry and exit into the market – Not as easy as perfect competition because of the existence of product differentiation. * Role of non-price competition is significant – Various methods used to attract the customers to buy a particular brand. * Selling cost – Different types of expenditure on advertisement would incur additional cost.
Oligopoly
Definition * there are only a few firms selling either standardized or differentiated products and it restricts the entry into and exit from the market
Characteristics
* Few numbers of firms – The number of firms is small but size of the firms is large. * Homogeneous or differentiated products – These products can be standardized products such as steel, zinc or copper which is price based. Other industries such as
Perfect Competition
Definition
* there are many buyers and sellers, the products are homogeneous and sellers can easily enter and exit from the market
Characteristics
* Large number of buyers and sellers – firms are price takers. * Homogenous or standardized product – the buyers do not differentiate the products of one seller to another seller. * Free of entry and exit into the market. * Role of non-price competition is insignificant. * Perfect knowledge of the market – all the sellers and buyers in perfect competition market will have perfect knowledge of that market.
Monopolistic
Definition * There are large numbers of small sellers selling differentiated products. These products are close substitute and firms have easy entry and exit from the market.
Characteristics
* Large number of buyers and sellers – Each firm produces different or unique products, so they have some control over the prices and follows an independent price-output policy. * Differentiated products – Product differentiation could be through packaging, design, labelling, advertising and brand name. * Free of entry and exit into the market – Not as easy as perfect competition because of the existence of product differentiation. * Role of non-price competition is significant – Various methods used to attract the customers to buy a particular brand. * Selling cost – Different types of expenditure on advertisement would incur additional cost.
Oligopoly
Definition * there are only a few firms selling either standardized or differentiated products and it restricts the entry into and exit from the market
Characteristics
* Few numbers of firms – The number of firms is small but size of the firms is large. * Homogeneous or differentiated products – These products can be standardized products such as steel, zinc or copper which is price based. Other industries such as