The elements of Market Structure include the number and size distribution of firms, entry conditions, and the extent of differentiation.
Components of market structure
These markets are usually studied by analysing duopolies , since these are easier to model and the main conclusions can be extrapolated to oligopolies. Oligopolies are typically composed of a few large firms. Pure oligopoly is found primarily among producers of such industrial products as aluminium, cement, copper, steel, zinc, etc. For Example; the seasonal crops harvested by farmers in areas where there is a lack of transportation will be bought by few buyers, say nearby factories to process it into a finished product. The cross elasticity of demand with every other product is very low. High barriers of entry prevent sideline firms from entering market to capture excess profits. Features of Different Forms of Market Structure Each type of market has distinct features which differentiate it from the others. Consumers do not have any alternative and must pay the price set by the seller.
If the products offered by different sellers are homogeneous, it lies in a perfect competition market. As a rule of thumb, we say that an oligopoly typically consists of about dominant firms. This market is considered to be unrealistic but it is nevertheless of special interest for hypothetical and theoretical reasons.
Market structure characteristics
It is very much like a game of chess or pool in which a player must anticipate a whole sequence of moves and countermoves in determining how to achieve his or her objectives. Product differentiation: Product may be homogeneous steel or differentiated automobiles. The rate of customer churn is affected by the degree of consumer or brand loyalty and the influence of persuasive advertising and marketing Market Structures and Economic Efficiency - Revision Video Test your knowledge: Market Structures MCQ revision video Subscribe to email updates from tutor2u Economics Join s of fellow Economics teachers and students all getting the tutor2u Economics team's latest resources and support delivered fresh in their inbox every morning. It is most commonly seen in labour markets. He has to accept the price for the product as fixed for the whole industry. That is why, Chamberlin says that perfect competition is a rare phenomenon. Therefore the competing firms will be aware of a firm's market actions and will respond appropriately. There is a single buyer in a monopsony market who has the power to influence the price of the product. Perfect Competition Perfect competition describes a market structure, where a large number of small firms compete against each other. Monopsony: A monopsony market is just the opposite of a monopoly. These are classified as follows: Duopoly: In a duopoly, the market is majorly captured by two sellers who work unanimously. Monopolistic competition builds on the following assumptions: 1 all firms maximize profits 2 there is free entry, and exit to the market, 3 firms sell differentiated products 4 consumers may prefer one product over the other. Such a situation is asymmetrical. Product differentiation implies that products are different in some ways from each other.
Sellers and buyers can influence in the determination of the price of goods, leading to efficiency losses. Here the consumer loose all their power and market forces become irrelevant. The above two conditions between themselves make the average revenue curve of the individual seller or firm perfectly elastic, horizontal to the X-axis.
It is most commonly seen in labour markets. Imperfect competition includes market structures such as: — Monopoly : it represents the opposite of perfect competition. These are classified as follows: Duopoly: In a duopoly, the market is majorly captured by two sellers who work unanimously.
You're now subscribed to receive email updates! Products are close substitutes with a high cross-elasticity and not perfect substitutes. Thus, every move by one seller leads to counter-moves by the others. Duopsony: A market where there are only two significant buyers of a product is termed as a duopsony market.
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