Types of market structures<br />In a perfectly competitive market, prices reflect an economy's collective wisdom, but in a monopolistic market, they reflect one company's absence of wisdom.<br />Perfect Competition:<br />Characteristics:<br />Many buyers and sellers.<br />Homogeneous (identical) products.<br />Easy entry and exit for firms.<br />Perfect information for all participants.<br />No single firm can influence the market price.<br />Implications:<br />Prices are determined by market forces (supply and demand).<br />Monopoly:<br />Characteristics:<br />Single seller dominating the market.<br />Unique product with no close substitutes.<br />Significant barriers to entry.<br />Price maker – the firm has control over the price.<br />Implications:<br />The monopolist can set the price to maximize profits.<br />Limited consumer choice.<br />Potential for reduced efficiency and innovation. Firms are price takers, meaning they accept the market price.<br />Oligopoly:<br />Characteristics:<br />Small number of large firms dominate the market.<br />Products can be homogeneous or differentiated.<br />Significant barriers to entry.<br />Mutual interdependence among firms.<br />Implications:<br />Firms may engage in non-price competition (advertising, branding, etc.).<br />Price and output decisions are influenced by the actions of competitors.<br />Collusion is possible but often regulated.<br />Monopolistic Competition:<br />Characteristics:<br />Many firms, each producing a differentiated product.<br />Relatively easy entry and exit.<br />Some control over price due to product differentiation.<br />Implications:<br />Firms have a degree of market power but are price setters to a limited extent.<br />Non-price competition is common through advertising and product differentiation.<br />Consumers have a range of similar but not identical products to choose from.
