by Cole Johnston
Perfect Competition is the ideal market structure. It is the goal of perfection for any market, however it is not the reality.
- Numerous Buyers and Sellers: No one seller or buyer has control over price.
- Identical Standardized Products: All sellers offer a standardized product that is identical in all ways, and causes no competition.
- Freedom to enter and exit markets: People have the freedom to create a business and enter or leave the market whenever they want, there is no regulation.
- Independent Buyers and Sellers: Nobody can group up, buyers cannot join other buyers, or sellers cannot join other sellers to influence competition.
- Well Informed Buyers and Sellers: Everyone involved with this market is well aware of the market conditions.
Advantages of Perfect Competition is the fact that there is no competition in the market, everybody is making money and everybody is happy.
Disadvantages of Perfect Competition is the fact that prices are always at their equilibrium and their is no variety in the market because every product is standardized.
There are no examples of Perfect Competition because of the fact that it is impossible. There will always be competition between businesses, however Perfect Competition can serve as an ideal model for a market structure.
A Monopoly is a Market Structure that involves only one seller selling a product for which there are no close substitutes. There are multiple types of Monopolies, these include
- A Natural Monopoly is when the cost of production is the lowest because only one firm is supplying product or service.
- A Government Monopoly is a monopoly that occurs because the Government enforces, allows, or owns it. Such as only one cable or electric company per city.
- A Technological Monopoly is a monopoly that occurs when a company owns a manufacturing method, invention, or type of technology.
- A Geographic Monopoly is a monopoly because there are no other producers or sellers within a certain region.
- Only One Seller: A single business controls the supply of a single product with no close substitutes.
- Control of Prices: Monopolies can set their own prices because they have no competition or close substitutes. This means that no matter how high they set their prices, people will have to pay it if they want a product like it.
- Restricted, Regulated Market: Government regulations or other barriers to entry prevent other firms from entering the business. This is typically with Government Monopolies, which enforce only one cable company or electric company per city.
There are no advantages for a Monopoly, except for the single business themselves, who get to maximize their profit. Although, Government Monopolies are usually in place for a good reason, such as cities only have room for one cable company. It would not work if cable companies were constantly changes cables around your street vying for your business.
A Monopoly means that their is no fair competition in the market, and people will have to pay prices higher than the equilibrium price.
A good example of a monopoly would be the cable or electric companies, due to the fact that the Government enforces only one per city. However, a better example would be Microsoft having almost complete control in the processor market during their beginning.
One of the most common market structures, Monopolistic Competition is where sellers sell similar, but not standardized products to consumers.
- Many Sellers and Many Buyers: There are numerous sellers and even more buyers. Sellers can sell whatever product they want at any price, but the buyers help determine the market equilibrium price.
- Similar but Differentiated Products: Each seller offers a differentiated product. This gives their product uniqueness and allows it to stand out among the others, enforcing competition.
- Limited Control of Prices: A seller can offer their product at any price they want, however consumers will choose the cheaper and better product. This creates competition and allows the market price to settle on an equilibrium between buyers and sellers.
- Freedom to Enter or Exit a Market: There are no major barriers to entering a market in this market structure. It does not cost much to start a business, and you're not restricted when closing your business.
The advantage of Monopolistic Competition is the fact that the consumer has a lot of power in determining the price. There is also a lot of variety in products.
The Disadvantages is the fact that their is still competition, and not true price equilibrium.
Most Market Structures that you interact with involve Monopolistic Competition.
An Oligopoly is a Market Structure where there are only a few sellers that offer a similar product. It is less competitive than Monopolistic Competition.
- Few Sellers, Many Buyers: In an Oligopoly, only a few firms dominate the market. A market is generally considered to be a Oligopoly if the market's four largest firms control at least 40% of the market.
- Standardized or Differentiated Products: Products sold by each of the firms are differentiated to be unique and allow the product to stand out to consumers.
- More Control of Prices: There is still competition between the four firms, but they have more control because of the differentiation of their products, and the demand for them.
- Little Freedom to Enter or Exit a Market: There is little room for anyone to enter this market. It can be easy to enter, but the profits are low. The costs to compete with the larger firms are extremely high, and the amount of investments make it extremely difficult to exit the market.
There are few advantages to an Oligopoly. It is similar to a Monopoly, although there is still competition that keeps prices near the equilibrium price.
It is very difficult to enter any Oligopoly market. The costs to compete can be very high. There is still competition, although companies involved in an Oligopoly still have some control to keep their prices a little higher than the equilibrium price.
A very good example of an Oligopoly is the Breakfast Cereal Market. The largest four companies own 80% of the entire market.