The market is presented as a form that is for the cultural advantage of the general public. The market structure comprises different types of markets, and the structures are portrayed by the nature and the level of competition that exists for the goods and services in the market. The forms of the market, both for the products market and the factor market or the service market, is to be decided by the idea of rivalry that is winning in a specific kind of market.
The Market structure is an expression that is resultant for the quality or the adequacy of the market competition that is winning in the market.
2. Markets Classification
• A variety of market structures will characterize an economy. Such market
structures essentially refer to the degree of competition in a market.
• There are other determinants of market structures such as the nature of the goods
and products, the number of sellers, number of consumers, the nature of the
product or service etc.
• Markets are classified into
1) Perfect Competition
2) Monopoly
3) Monopolistic Competition
4) Oligopoly
3. Perfect Competition
• In a perfect competition market structure, there are a large number of buyers and sellers. All
the sellers of the market are small sellers in competition with each other. There is no one big
seller with any significant influence on the market. So all the firms in such a market are price
takers.
• Specific characteristics of a perfect market are:
Infinite (very large number of) buyers and sellers
The products on the market are homogeneous, i.e. they are completely identical
All firms only have the motive of profit maximization
Zero entry and exit barriers Perfect factor mobility i.e. there are no barriers
Perfect information
Zero transaction costs
Property rights
And there is no concept of consumer preference
4. Monopoly
• A monopoly is a market structure in which a single supplier produces and sells a
given product.
• If there is a single seller in a certain industry and there are no close substitutes for
the product, then the market structure is that of a "pure monopoly".
• No close substitute or competition for a particular price, service or region.
• Marketing or Advertising cost is zero.
• Seller is the PRICE MAKER, Buyer is the PRICE TAKER.
• It can set any price it wishes since it has all the market power.
• Consumers do not have any alternative and must pay the price set by the seller.
5. Monopoly
• Monopoly firm can restrict output, raise prices, and enjoy abnormally high profits
in the long run.
• Of course, that does not happen in Indian Railways because of cross subsidization
of passenger fares for populism.
• Railway is a pure monopoly, but since it is for public good, it is desirable.
6. Monopolistic Competition
• Sometimes, there are many sellers in an industry and/or there exist many close substitutes
for the goods being produced, but nevertheless companies retain some market power. This
is termed monopolistic competition.
• There are MANY Buyers and MANY sellers.
• But they all do not sell homogeneous products. The products are similar but all sellers sell
slightly differentiated products. Each seller has slightly different version of product (iphone
vs Samsung Galaxy vs Oneplus) each with some loyal fans. So, a little change in price will not
instantly shift all buyers to another seller.
• Now the consumers have the preference of choosing one product over another. So, Seller is
the PRICE MAKER not Price TAKER (upto a level depending on brand loyalist fans)
• Most of the items we find in the grocery shops are part of monopolistic competition.
• For example, the market for cereals, toothpaste is a monopolistic competition. The products
are all similar but slightly differentiated in terms of taste and flavours.
7. Oligopoly
• An oligopoly is a market form in which a market or industry is dominated by a small number
of sellers.
• Because there are few sellers, each oligopolist is likely to be aware of the actions of the
others.
• MANY Buyers - Few sellers with identical product & but with intense competition among
themselves e.g. SpiceJet, Jet Airways, IndiGo, Vistara so price wars, discount-offers,
advertisement cost high.
• So in the case of an oligopoly, the buyers are far greater than the sellers.
• The firms in this case either compete with another to collaborate together, They use their
market influence to set the prices and in turn maximize their profits. Example OPEC
• So the consumers become the price takers.
• In an oligopoly, there are various barriers to entry in the market, and new firms find it
difficult to establish themselves.
8. • Duopoly= a market with just two firms. But if they form a cartel, then it’ll
become as if it’s ‘monopoly’.
• Cartel = when they form a gang to restrict the supply / raise prices e.g.
OPEC oil producing nations.
• A duopoly is a type of oligopoly where two firms have dominant or
exclusive control over a market.
• A commonly cited example of a duopoly is that involving Visa and
MasterCard, who between them control a large proportion of the
electronic payment processing market.
9. Monopsony
• A monopsony has only one buyer for a particular good or service,
giving that buyer significant power in determining the price of the
products produced.
• Buyer is the PRICE MAKER. Seller is the PRICE TAKER.
• Buying seats for railway; or Indian Army buying
Uniforms/Insignia/Machineguns.