Types of Market Structure

Types of Market Structure

Monopoly

In Monopoly market structure, only one firm dominates the market with no reasonable substitute available to buyers. Because there is no competition, this gives the firm a lot of power over the price that they can charge. Having said that, the revenue of the company will depend on what kind of product it sells, because the buyers must be willing or must have the ability to pay the price that the company wants to charge.

Perfect Competition

In Perfect Competition, there are many buyers and sellers in this kind of market, so a single participant does not have significant market power over the price.

Even if any participant attempts to significantly alter the price, the buyers and sellers have many other options to resort to.

Monopolistic Competition

In Monopolistic Competition, the characteristics of a monopoly and perfect competition. There are several competitors in the market, but their products are highly differentiated, which means they are able to raise the prices higher, compared to the perfectly competitive firm. The best example is that of the music industry, where, despite the heavy competition, some artistes are able to charge a higher price.

Oligopoly

In an Oligopoly, there are a handful of producers that dominate the marketplace. For example, the supermarket segment in the UK can be said to be an oligopolistic market as the market is dominated by only a handful of supermarkets such as Tesco, Sainsbury’s, Asda, Morrisons, and Aldi. Tesco is the largest supermarket in the UK, and the top four retailers account for over two thirds of the total sales in the UK (Mintel, 2020).

While, this may seem to be a better situation than a monopoly, without regulations however, the few market players can collude to set high prices in the market.

On the other hand, while fewer choices of companies may seem like a bad thing, it can also be a good thing as it can make it simpler for the consumer to buy things, requiring less research. Also, the companies can still offer a competitive pricing because consumers may reject high-priced things, as is observed during a slowing economy.