The Market Structure
By Connor Holton
The market structure is a form of economic model that economists use to plot and chart how buyers and sellers interact with each other. It can be summed up as a basis to which concepts such as perfect competition, monopolistic competition, and oligopoly rest.
Monopolistic competition involves multiple sellers working in a market to sell a similar, but non-standardized product. Economists can argue that it is the purest form of capitalism, with each seller doing their best to make their product the most appealing, and the most profitable. Perhaps the most well known example of a modern monopolistic competitive situation would be the soda market, IE: Coke and Pepsi.
- Numerous sellers
- Relatively similar products
- Some, but few, barriers to entry
- Little to no substitutes
- Due to the similarities between products, sellers that are not monopolies cannot produce adequate substitutes.
An oligopoly is a small collection of large companies. In an oligopoly, the majority of the market is controlled by a small number of these large companies, which in turn saturate the market with their products. Substitutes are almost unknown, and there are immense barriers to entry to the industry for start-up companies. Each company that exists in an oligopoly is a price maker, able to set their own prices as high as government regulation will allow for. Both cartels and trusts are different forms of oligopolies.
- Markets are stable
- Due to the limited number of firms, there is a low chance that the market can collapse, as each industry keeps it healthy.
- Low prices, high production
- Non-price competition
- Zero substitutes
- Many barriers to entry
A monopoly is an economic situation in which the market or an industry is dominated by a lone seller. There is no room for competition, and substitutes are completely unknown. As barriers to entry go, monopolies erect stone walls to bar other companies from gaining access to the market, figuratively. There are subcategories of monopoly, such as geographic, technological, and government. Each one represents a different aspect which contributes to an economy.
- The market is completely how the seller wishes it to be, usually stable.
- Zero substitutes
- Elimination of competition
- Price discrimination
- The seller has full power to determine what prices are set at, as well as price floors and ceilings.
- Monopolies can control resources used to produce goods.
The government either subsidizes, or only authorizes a single company control over an area of industry. One such example is Lockheed Martin. Government monopolies can also be used to produce goods necessary for a functioning society, such as food and automobile production.
Geographic monopolies result in the lack of competition within the area of business. For the only supermarket within twenty miles, it has free reign over all customers within a twenty mile radius. While not a true monopoly, it represents a complete lack of competition.
Technological monopolies are companies which control the production and manufacturing aspects of goods. This kind of monopoly is different from both horizontal and vertical production, in the case that it does not sell the product, but is paid to produce it in large quantities. One example is Intel.
Natural monopolies represent an industry condensed into a single firm. These kinds of companies produce goods for low prices, without competition. These companies are also both the largest and most efficient manufacturer. A general example for a natural monopoly is an electrical company in a small country.