By Haley Keiger
(n.) an economic model of competition among businesses in the same industry
As an ideal image of the market structure, perfect competition serves as an honorable replica of what we base our markets off of. A few characteristics of a perfect competition market include:
1. Numerous buyers and sellers: limits the consumer and producer on controlling the total price of one item.
2. Standardized product: there are many different productions of one essentially identical products.
3. Freedom to enter and exit the market: there are no government regulations that prevent or restrict a producer or consumer in the market.
4. Independent buyers and sellers: producers are not allowed to come together to influence prices and sellers are not allowed to join together, either.
5. Well-informed buyers and sellers: consumers have the right to compare shopping and prices, as producer are allowed to use competing prices.
Monopoly is the least competitive market structure there is, considering it generally sells products with limited substitutes. What this means is that monopolies generally offer and sell products that a consumer will have a hard time finding a substitute product for. With that being said, monopoly is a price maker, which means they do not have to consider competitors when forming their prices. A few basic characteristics include:
1. Only one seller: there are no close substitutes to any products the business is willing to supply.
2. Restricted, regulated market: there are government regulations/barriers that prevent other firms from entering the market.
3. Control of prices: monopolies are price makers and do not have to face the prices of their competition
The cost of production are the lowest when there is only one firm providing output. Natural monopolies occur when there is only one business/company dominating the market, benefiting the community.
Example: water or electricity supply company (it would be a waste of community resources to have multiple suppliers competing for business)
Advantages: the government supports natural monopolies because their fixed costs are spread through all consumers, and it becomes more efficient.
Disadvantages: due to no competition, businesses can easily raise their prices to an unfair price, without government intervening.
The government either owns and runs the business, or the government authorizes only one producer. Government type monopolies provide goods and services that are not offered by private firms or businesses with low profit opportunities.
Example: although the postal service does not completely dominate our market, the U.S. Postal Service is one of the oldest government monopolies, and still is a strong monopolies in other countries such as Germany and Nigeria.
Advantages: the government offers little discrimination and offers more resources available to consumers.
Disadvantages: some people oppose government interaction in businesses alone.
The inventor has exclusive property rights to their invention or process for a certain number of years.
There are no other producers within a certain region or area. Geographic monopolies are pretty costumed to the area they are in, and there are generally restrictions towards the market.
Example: NFL, MLS, MLB, etc.
Advantages: the region in which the business is in develops a great market
Disadvantages: some isolated locations with small communities do not thrive well because the market is too small to support.
Monopolistic competition occurs when there are many sellers offering similar product, but not exact. For example, there can be many different companies selling T-shirts, however, no two T-shirt stores are the same. This means that there is not just one seller with total control of the market. Each seller has a small portion of control over the segment of the market.
1. Many sellers and many buyers: sellers are able to choose which kind of product to produce and how much to produce of it, and buyers are able to choose from which seller they want to buy from.
2. Similar but differentiated products: sellers create a distinct product, in hope to gain consumer popularity and sell their product over their competitors.
3. Limited Control of prices: due to competition, sellers don't have too much control of their prices, because the consumers are open to substitutions.
4. Freedom to enter/exit the market: no huge barriers or restrictions to enter the market, and no large amount of capitol freedom to enter the market.
pros v. cons:
One huge disadvantage of monopolistic competition would be the price discrimination. Businesses have the right to set their prices, meaning some sellers could set prices of their products at certain prices, depending on their target market. However, an advantage would be that consumers have a number of options before giving businesses to just one industry.
Oligopoly is a type of market structure that only have a few sellers, which offer a similar product. The oligopoly include a few large firms that dominate the market and have a large percentage of sales in the market (market share).