Differentiating Between Market Structures
Differentiating Between Market Structures
Jennifer Lavallee
ECO/365
May 27, 2013
Market structure is the physical characteristics of the market within which companies react. This means that there are different kinds of market structure based on how companies work together within a particular industry. Location and product have the most to do with determining the market structure. There are four defined market types. The first market structure is called the perfectly competitive market. The second market is called a monopoly market structure. The third market is called monopolistic competition market structure. The final market is called oligopoly market structure. Each market structure is different and both benefits and disadvantages to businesses.
The perfectly competitive market is a market in which economic forces operate unimpeded. There are also factors that must occur for a truly perfect competitive market to exist. The first factor is that both buyers and sellers must be price takers. Price takers are those who take the price determined by market supply and demand as given. The next factor of a perfectly competitive market is that there are a large number of companies. Companies need to be large enough to ensure what happens to one company will not influence the business of the other companies. Another factor to a perfectly competitive market is that no barriers exist for entry into the industry. This includes social, political and economic barriers being nonexistent. Products in a perfectly competitive market must be identical, absolutely no distinguishing factors. Complete information must be accessible to everyone in the market to facilitate a perfectly competitive market. Information like prices, products and available technology must be made available by the companies to other companies and individuals. The final factor in securing a perfectly competitive market is that selling firms are profit maximizing entrepreneurial companies. This ensures
Jennifer Lavallee
ECO/365
May 27, 2013
Market structure is the physical characteristics of the market within which companies react. This means that there are different kinds of market structure based on how companies work together within a particular industry. Location and product have the most to do with determining the market structure. There are four defined market types. The first market structure is called the perfectly competitive market. The second market is called a monopoly market structure. The third market is called monopolistic competition market structure. The final market is called oligopoly market structure. Each market structure is different and both benefits and disadvantages to businesses.
The perfectly competitive market is a market in which economic forces operate unimpeded. There are also factors that must occur for a truly perfect competitive market to exist. The first factor is that both buyers and sellers must be price takers. Price takers are those who take the price determined by market supply and demand as given. The next factor of a perfectly competitive market is that there are a large number of companies. Companies need to be large enough to ensure what happens to one company will not influence the business of the other companies. Another factor to a perfectly competitive market is that no barriers exist for entry into the industry. This includes social, political and economic barriers being nonexistent. Products in a perfectly competitive market must be identical, absolutely no distinguishing factors. Complete information must be accessible to everyone in the market to facilitate a perfectly competitive market. Information like prices, products and available technology must be made available by the companies to other companies and individuals. The final factor in securing a perfectly competitive market is that selling firms are profit maximizing entrepreneurial companies. This ensures
References: Colander, D. C. (2010). Economics (8th ed.). New York, NY: McGraw-Hill. Kudler Fine Foods Virtual Organization Link retrieved from www.phoenix.edu