Market structures refer to intertwined features of the market that include number and comparative strength of buyers and sellers and depth of collusion among them. Other aspects that help to define a market structure are the extent of product differentiation, level and forms of competition, and easiness of entry into and exit from the subject market. Market structure thus describes the degree of competition felt by businesses in the industry. Market structures dictate products sold, easiness of entry into and exit from the industry, and volume of information available for the subject industry. Stakeholders, particularly the government and regulators, must thoroughly comprehend active market structure types in their locality in order to understand implications of any actions pursued. Failure to understand the market structure by the government may lead to eventual suffocation and death of an enterprise and this can be detrimental to the economy and wellbeing of the community.
Perfect competition occurs when several small firms compete against each other. Perfect competition market structure is marked by many sellers and buyers. Firms are obliged to accept a market price as several competitors exist. Monopoly is the second market structure to be explored. A monopoly refers to a firm that lacks competitors in its industry. In order to increase profits, a monopolistic firm lowers its output to raise prices. Oligopoly is a market structure composed of few large firms. Oligopolistic firms produce a similar product for sale and compete heavily for market dominance. Entry into an oligopolistic market is difficult because of a high start-up cost and control of strategic raw material. Oligopolistic firms can collude to create a monopolistic atmosphere in the market.
Lastly, monopolistic competition refers to a market structure that has many sellers. The monopolistic competition differs from perfect competition in that firms concerned sell branded products and there is easiness of entry into and exit from the industry.
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