Structurally sound? Market Structures Overview
Characteristics: There is only one seller in the market, with standardized products. These products have no true substitutes. The seller has a huge control of the prices. There are also numerous barriers to enter/exit the market, as it is restricted/regulated. There are multiple variations of monopolies: natural (costs to produce are low with 1 producer), government (government owns and runs business while only allowing one producer), technological (controls market through technology and invention), and geographic (producer grows, costs fall).
Advantages: There is no competition for the business, so they draw in more consumers. For the producer, they have the power to make the price of the product (though this can be a negative for the consumers).
Disadvantages: The seller is the price maker, which could have negative effects for consumers. There is typically a barrier of entry/exit that makes working in this market structure difficult. The monopoly may start cutting off access in other markets.
EX. About as elusive as perfect competition. Some examples include cartels, diamond markets, water companies, and sports.
Characteristics: There are few sellers in the market. They offer standardized products in the industry, and are differentiated for the consumers in the market. They have a generally decent amount of control over prices, as well as many barriers of entry/exit in the market.
Advantages: Start-up costs serve as a barrier. Firms hold market shares, percents of sales in market. More sellers than in a monopoly. Standardized/differentiated products. Make use of surveys, focus groups, and more.
Disadvantages: Less competitive than monopolistic competition. Similar to monopoly, only now multiple businesses work in the dominating of markets. Have control on prices similar to that of a monopoly. Difficult to enter/exit the market.
EX. Soft drink companies, breakfast cereals, and general consumption goods exemplify oligopolies.
Coke vs. Pepsi... Pepsi should consider getting an animal mascot...
Characteristics: There are many buyers in the market, as well as sellers, with products that appear similar, but have differentiation. There is limited control on prices, but few barriers of entry and exit to the market.
Advantages: Each seller has influence of small portions of the market. Leaves room for competition. Businesses can encourage competition without altering prices of products through methods in non-price competition. Price control is limited. Entering/exiting the market isn't a hassle.
Disadvantages: Products aren't exactly very similar, leaving searches for substitutes still moderately difficult. Companies may differentiate products when there is a minimal difference.
EX. T-shirts and hamburger restaurants offer prime examples of monopolistic competition. The vendors sell similar products, but they aren't exactly the same.
Characteristics: Standardized products from many sellers. There is no control on the prices from the seller, but they also have very few barriers that keep them from exiting/entering the market. The buyers/sellers are numerous, independent, and well informed.
Advantages: Equilibrium of prices is the usual norm. There is complete freedom in entering or exiting the market. The buyers and sellers are well informed about the choices they make in the market.
Disadvantages: The seller has to abide by the prices set by the price taker. Only efficient producers are able to make enough money to stay in a perfectly competitive market. No market really matches all the criteria for a perfect competition.
EX. There exist no real examples of perfect competition. However, industries like corn and beef industries, as well as auctions, do come close.