The four market structures
The Four Market Structures
Every business belongs to a type of market due to demand and freedom of entry. In order to know what type of market businesses operate in, it is important to distinguish which market structure each specific firm belongs to. The four structures which I will go onto explain in depth are perfect competition, monopolistic competition, monopoly and oligopoly/ duopoly.I will also be comparing and contrasting the theoretical constructs and the associated assumptions.
Perfect competition is the most common out of all markets where you will find many businesses competing against each other. The firms in this industry are usually small and are not influential enough to affect or change the price of an item and have unrestricted freedom of entry. Their products are homogenous as each seller’s product is identicaland sold at the same priceas its competitors, such as fruits and vegetable stalls or products sold at an off-licence. However, anassumption of this model is that it doesn’t exist in reality and this structure is considered to be theoretical. The other assumptions of perfect competition are that the firm in this market are price takers. A single buyer or seller will never have sufficient power alone to mark a price as the cost of a product relies on the supply and demand.On a graph this is displayed with the demand curve being horizontaland perfectly elastic as it is a price taker and profit is made only in the short-run in this market.
Figure 1.Taken from Tutor2u.net. 2014. PerfectCompetition - Economics of Competitive Markets. [online]
A market similar to perfect competition is monopolistic competition where the freedom of entry is has no restrictions to this market. The major variation with these two market structures is that the monopolistic market has differentiated products which narrow the quantity of alternatives. As there are no barriers within this market, firms can freely set up business, however this can result in a lot
Every business belongs to a type of market due to demand and freedom of entry. In order to know what type of market businesses operate in, it is important to distinguish which market structure each specific firm belongs to. The four structures which I will go onto explain in depth are perfect competition, monopolistic competition, monopoly and oligopoly/ duopoly.I will also be comparing and contrasting the theoretical constructs and the associated assumptions.
Perfect competition is the most common out of all markets where you will find many businesses competing against each other. The firms in this industry are usually small and are not influential enough to affect or change the price of an item and have unrestricted freedom of entry. Their products are homogenous as each seller’s product is identicaland sold at the same priceas its competitors, such as fruits and vegetable stalls or products sold at an off-licence. However, anassumption of this model is that it doesn’t exist in reality and this structure is considered to be theoretical. The other assumptions of perfect competition are that the firm in this market are price takers. A single buyer or seller will never have sufficient power alone to mark a price as the cost of a product relies on the supply and demand.On a graph this is displayed with the demand curve being horizontaland perfectly elastic as it is a price taker and profit is made only in the short-run in this market.
Figure 1.Taken from Tutor2u.net. 2014. PerfectCompetition - Economics of Competitive Markets. [online]
A market similar to perfect competition is monopolistic competition where the freedom of entry is has no restrictions to this market. The major variation with these two market structures is that the monopolistic market has differentiated products which narrow the quantity of alternatives. As there are no barriers within this market, firms can freely set up business, however this can result in a lot
References: Dummies.com. 2014.Eyeing the Four Basic Market Structures - For Dummies. [online] Available at: http://www.dummies.com/how-to/content/eyeing-the-four-basic-market-structures.html [Accessed: 23 Jan 2014]. Econ100-powers-sectiona.wikispaces.com. 2014.econ100-powers-sectionA - Assumptions of Perfect Competition. [online] Available at: http://econ100-powers-sectiona.wikispaces.com/Assumptions+of+Perfect+Competition [Accessed: 22 Jan 2014]. Tutor2u.net. 2014.Perfect Competition - Economics of Competitive Markets. [online] Available at: http://tutor2u.net/economics/revision-notes/a2-micro-perfect-competition.html [Accessed: 27 Jan 2014].Figure 1. Economicsonline.co.uk. 2014.Monopoly. [online] Available at: http://www.economicsonline.co.uk/Business_economics/Oligopoly.html [Accessed: 24 Jan 2014]. Intelligenteconomist.com. 2014.Market Structure: Perfect Competition | Intelligent Economist. [online] Tutor2u.net. 2014.Monopoly - Kinked Demand Curve under Oligopoly. [online] Available at: http://www.tutor2u.net/economics/content/topics/monopoly/kinked_demand.htm [Accessed: 27 Jan 2014]. Available at: http://www.intelligenteconomist.com/market-structure-perfect-competition-short-run/ [Accessed: 27 Jan 2014]. Sloman, J., Garratt, D. and Hinde, K. 2010. Economics for business. Harlow [u.a.]: Financial Times Prentice Hall.