What is Market Structure?

In economics understanding the nature and characteristics of the market is very essential for both sellers and buyers. Markets are very big in size and complex in nature so to understand the nature of market structure we classify them into many types based on different and unique characteristics.

So in this article, we will discuss what is market structure, and the type of market structures like perfect competition, monopoly, oligopoly, and monopolistic competition market characteristics with examples.

► What is Market Structure?

Market structure is defined as how a firm is differentiated based on the type of goods they sell, their functions and operation, nature, and the internal and external factor affect impact their operation.

Market Structure shows the relationship between different stakeholders present in the market. This relationship exists between sellers and other sellers, buyers, and sellers, sellers, and the government or more.

Market structure is differentiated on the basis of these traits.

  • Number of buyers
  • Number of sellers
  • Availability of substitute product
  • Degree of differentiation in goods and services a
  • Capture Market share
  • Degree of Entry and exit barriers

► Type of Market Structure

  1. Perfect Competition
  2. Monopolistic Competition
  3. Oligopoly
  4. Monopoly

✔ 1. Perfect Competition

A perfectly competitive market is defined as a market where there is a large number of sellers and buyers present in the market and they are buying and selling homogeneous goods. Where Buyer and seller both have true knowledge about the market.

Characteristics of Perfect Competition

  1. A large number of buyers and sellers
  2. Homogenous goods available in market
  3. Free entry and exit of firms in the market
  4. Both seller and buyer have perfect knowledge of the market
  5. Perfect mobility factors are available
  6. Absence or lack of selling cost
  7. Perfect demand elasticity exists
  8. In the short run, the firm may get Super Natural Profit, Normal Profit, Losses, and Shut down points.
  9. In the long run, firms are only satisfied with Normal Profit.

Example of Perfect Competition Agriculture commodities

✔ 2. Monopolistic Market Competition

Monopolistic competition is a kind of imperfect competition where a larger number of sellers and buyers exist but they sell differentiated goods. This concept is given by Chamberlin in 1933.

The term monopolistic competition refers to the market structure where sellers have a kind of monopoly on their product but face constant pressure from substitute products.

Characteristics of Monopolistic Competition

  1. Large numbers of buyers and sellers
  2. Heterogeneous or differentiated goods
  3. Freedom of entry and exit of firms
  4. Both buyers and sellers have imperfect knowledge
  5. Nonprice competition
  6. Limited mobility
  7. In short term, a firm gets Supernatural, Normal profit, Minimum losses
  8. In long term, a firm gets Normal Profit.
Examples of Monopolistic Competition – Toothpaste, soaps, Restaurants, and Clothing
which all are similar but have slightly different in taste, Flavour, smell, etc

Also Read : 4P’s of Marketing

✔ 3. Oligopoly Market

An oligopoly is a market situation in which a market or industry is dominated by a small group of sellers.

In other words, an oligopoly is defined as a market situation in which the number of firms in an industry is small and they have mutual interdependence with each other but do not have control over the price.

Characteristics of Oligopoly

  1. Few sellers exist in the market
  2. Firms sell a homogenous and distinctive product
  3. Restriction on the entry and exit of the firm
  4. Imperfect knowledge
  5. High cross elasticity
  6. Price rigidity exists and a kinked demand curve
  7. Firms have mutual  interdependence
  8. High expenditure on advertisement
  9. The existence of product differentiation creates brand loyalty.

Examples of Oligopoly Market

  • The Indian telecom sector is dominated by Airtel, Jio, Vodafone, and idea (VI).
  • Petroleum and gas sector- Indian Oil Corporation ltd, Bharat Petroleum Ltd, Hindustan Ltd.
  • Aircraft maker Airbus and Boeing.

✔ 4. Monopoly Market

A monopoly is a market situation in which only a single seller and a large number of buyers exist and there is no substitute product available in the market, along with this there are high entry barrier exists.

The Source of a monopoly can be patents, technical barriers, government policies, control over the input resource, and Large capital requirement.

Characteristics of Monopoly Market

  1. One seller and a large number of buyers.
  2. Product or service has no close substitute
  3. Firms is a price maker
  4. Price discrimination exists, different prices for different buyer
  5. No competitor exists
  6. No freedom for firms to enter the market
  7. In short term, a firm gets Super natural profit, Normal Profit, Losses
  8. In long term, firms get only super profit.

Example of a Monopoly Market Indian Railway, Local water, and electricity supply.

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