How Market Structures Determine the Pricing and Output of Businesses
How Market Structures Determine the Pricing and Output of Businesses
Introduction
There are several different market structures in which organisations can operate. The type of structure will influence a company’s behaviour and the level of profits it can generate. The structure of a market refers to the number of businesses in a market, their market shares and other features which affect the level of competition in the market. Structures are classified in term of the presence or absence of competition. When there is no competition, the market is said to be concentrated. A scale from perfect competition to monopoly can be found below.
Perfect Competition
A perfectly competitive market is a market where competition is at its greatest possible level. It is argued that perfect competition would produce the best possible outcomes for consumers and society. A perfectly competitive market will exhibit the following characteristics: There are no barriers to entry into the market.
No single company can influence the market price or market conditions.
There will be a large numbers of companies in the market.
There is no need for government regulation, except to make markets more competitive.
There are assumed to be no external costs or benefits.
Oligopoly
An oligopoly is a market structure in which few organisations dominate. When a market is shared among a few, it is said to be highly concentrated. Although only a few companies dominate, it is possible that many small businesses may also operate in the market.
Duopoly
A market in which two companies own the entire market share for a given product or service is called a duopoly. A duopoly is the most basic form of an oligopoly. Amazon and Apple have been called a duopoly for their dominance in the e-book marketplace.
Monopoly
A monopoly is a market structure in which there is only one producer or seller of a product. In other words, the single business is the industry.
Introduction
There are several different market structures in which organisations can operate. The type of structure will influence a company’s behaviour and the level of profits it can generate. The structure of a market refers to the number of businesses in a market, their market shares and other features which affect the level of competition in the market. Structures are classified in term of the presence or absence of competition. When there is no competition, the market is said to be concentrated. A scale from perfect competition to monopoly can be found below.
Perfect Competition
A perfectly competitive market is a market where competition is at its greatest possible level. It is argued that perfect competition would produce the best possible outcomes for consumers and society. A perfectly competitive market will exhibit the following characteristics: There are no barriers to entry into the market.
No single company can influence the market price or market conditions.
There will be a large numbers of companies in the market.
There is no need for government regulation, except to make markets more competitive.
There are assumed to be no external costs or benefits.
Oligopoly
An oligopoly is a market structure in which few organisations dominate. When a market is shared among a few, it is said to be highly concentrated. Although only a few companies dominate, it is possible that many small businesses may also operate in the market.
Duopoly
A market in which two companies own the entire market share for a given product or service is called a duopoly. A duopoly is the most basic form of an oligopoly. Amazon and Apple have been called a duopoly for their dominance in the e-book marketplace.
Monopoly
A monopoly is a market structure in which there is only one producer or seller of a product. In other words, the single business is the industry.