The definition of market has a wide scope and not all markets are similar. Markets, better known as the market structure, generally refers to the degree of competition that exists in the industry dealing with various goods and services. There are numerous factors that influence the market structure and create a great impact on the distribution of goods and services.
Factors like the type of sellers within a market, the number of sellers and the type of goods and services they sell, the number of consumers etc highly influence the market structure. Additionally, there are certain conditions regarding the entry and exit of marketers such as the profitability of the business, trade barriers if any, government restrictions and so forth. An insightful senior leadership program may help individuals understand the market structure and its various elements in an in-depth manner.
Read on to understand the major types of market structure in an economy and how it influences the pricing of various goods and services.
Types of Market Structure
Market structure is mainly categorised based on the level of competition in the sector of various goods and services. When multiple market structures come together, it forms an economy. However, not all these types of market structures actually exist in reality, but some of them are mentioned theoretically for the purpose of better understanding the underlying principles behind the classification of markets.
One may register for the IIM online courses offered by Imarticus Learning to better understand the market structures and their changing dynamics. There are four major types of market structure that can be categorised as follows:
Monopoly
Monopoly is a type of market structure where a business dominates the entire market with little to zero competition and no substitutes. When an enterprise holds a monopoly, it can decide and set product costs according to its convenience subject to the restrictions of the Government, if any. Additionally, it can develop barriers in order to keep potential competitors away from entering the market.
The monopolistic market condition consists of a single seller who dominates the market with its unique products and services that do not have any close substitutes. The participant of the monopoly market is a price maker who possesses significant control over the market. Players in the Monopoly market have a significant competitive advantage which helps the businesses to build a strong brand name.
However, entering this type of market structure is not easy. Monopolistic markets have a large number of barriers that restrict new players from entering the existing market. Due to the overwhelming dominance over the marketplace of the monopolist, prices of goods and services tend to go up.
Duopoly
In a duopoly market structure, the market is controlled and influenced by two independent and influential participants. The market competition exists only between these two sellers. There exists limited competition as only two dominant firms are a part of this market structure.
In a duopoly, sellers realise the dependency and carefully decide the pricing model considering its direct and indirect effects on the market and their business. However, this type of market condition allows customers to choose from a brief range of products. It is a stable market structure which is favourable for the investors. Additionally, it promotes technological competition and innovation through cutthroat competition in the market.
In a duopoly market, businesses engage in a strategic interaction as their decisions usually impact the pricing models and market conditions. Hence, there is an aspect of price interdependence. However, in this type of market structure, the products and services can be both homogeneous and differentiated in nature.
Oligopoly
In an oligopoly market, there exist more than one or two firms that cater to the same line of business. Here, many enterprises come together to capture a certain industry and reduce the competition. These are generally influential businesses that hold a certain amount of power and control over the market.
In an oligopolistic market structure, there exists limited competition and the firms are responsible for deciding the price structure, keeping in mind its impact on the market. However, there are significant barriers in order to restrict new participants from entering the market as there already exists numerous players. Here, products can be both homogeneous and differentiated, depending upon the nature of the industry.
This type of market structure offers a wide range of choices to the customers and consumers can easily choose from which seller they want to buy, depending upon the price and quality. Hence, if any seller increases their prices too much, customers may choose to buy from the sellers in the market. It is a consumer-oriented market structure where the consumers get to choose from a varied range of products.
Perfect Competition
A perfect competition market structure exists when such an industry has a wide range of sellers and buyers. In this market condition, there are innumerable numbers of sellers and multiple buyers wanting to buy such goods and services. As there are multiple marketers in a perfect competition market structure, no seller can significantly create a great impact on the market.
In this type of market condition, the participants are only price takers and do not have any influential aspect. Here, the products and services are roughly identical and specifications regarding their quality and pricing are readily available. It is believed that companies here aim at profit maximisation that is achieved because they increase their output by operating at the peak of their efficiency.
In a perfectly competitive market situation, demand and supply factors highly influence the production levels and cost of the products and services. This type of market condition consists of various small firms that produce and sell homogeneous products,e. completely identical items. Hence, the question of consumer tastes and preferences does not arise. Also, businesses can freely enter and exit the market at their convenience.
Conclusion
It is vital for professionals and businesses to be familiar with the array of market structures that include everything, starting with the lone domination of a monopoly market to the mutually beneficial relationships of an oligopoly market. It also encompasses the highly competitive market structure that is perfect competition.Acquiring an understanding of these market conditions as employed individuals is potentially important for your professional development and career advancement. You can sign up for the Global Senior Leadership Programme, IIM Lucknow by Imarticus. This business management programme is a specifically designed course for working professionals that will successfully help you navigate through a wide range of market structures. This is an exceptional opportunity for you to establish yourself as a leader and advance your career.
