Market structure

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In economics, market structure (also known as market form) describes the state of a market with respect to competition.

The major market forms are:

  • Perfect competition, in which the market consists of a very large number of firms producing a homogeneous product.
  • Monopolistic competition, also called competitive market, where there are a large number of independent firms which have a very small proportion of the market share.
  • Oligopoly, in which a market is dominated by a small number of firms which own more than 40% of the market share.
  • Oligopsony, a market dominated by many sellers and a few buyers.
  • Monopoly, where there is only one provider of a product or service.
  • Natural monopoly, a monopoly in which economies of scale cause efficiency to increase continuously with the size of the firm.
  • Monopsony, when there is only one buyer in a market.

The imperfectly competitive structure is quite identical to the realistic market conditions where some monopolistic competitors, monopolists, oligopolists, and duopolists exist and dominate the market conditions.

These somewhat abstract concerns tend to determine some but not all details of a specific concrete market system where buyers and sellers actually meet and commit to trade.

Quick Reference to Basic Market Structures
Market Structure Seller Entry Barriers Seller Number Buyer Entry Barriers Buyer Number
Perfect Competition No Many No Many
Monopolistic competition No Many No Many
Oligopoly Yes Few No Many
Oligopsony No Many Yes Few
Monopoly Yes One No Many
Monopsony No Many Yes One

The correct sequence of the market structure from most to least competitive is perfect competition, imperfect competition,oligopoly, and pure monopoly.

The main criteria by which one can distinguish between different market structures are: the number and size of producers and consumers in the market, the type of goods and services being traded, and the degree to which information can flow freely.

[edit] See also

The market form can equally be known to an extent by the barriers on entry and exit. It is to be noted that the Perfectly Competitive market, there exists free entry and exit; this applies to prospective/existing buyers and sellers. Though, this is not the case with the Imperfect market structure.

[edit] External links

  • Microeconomics by Elmer G. Wiens: Online Interactive Models of Oligopoly, Differentiated Oligopoly, and Monopolistic Competition
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Topics in microeconomics