This condition implies a close contact between buyers and sellers. The features of market structures are shown in Table 1. Finns differ considerably in size. His price is determined by his demand curve, once he selects his output level.
Not only are the products identical, information regarding product quality and price is perfectly and openly given to the public.
They have also perfect knowledge of the place where the transactions are being carried on. The product has no close substitutes. The rivalry arising from interdependence among the oligopolists leads to two conflicting motives. However, in the long run, there are some types of barriers to entry which tend to restraint new firms from entering the industry.
For example, selling a popular good on the internet through a service like e-bay is close to perfect competition. If he does so, his customers would leave him and buy the product from other sellers at the ruling lower price.
In case of loss being sustained by the industry, some firms leave it. The following are the main features of monopolistic competition: Some may be small, others very large.
There will be good information about relative prices. Since under oligopoly, there are a few sellers, a move by one seller immediately affects the rivals. Duopoly is a special case of the theory of oligopoly in which there are only two sellers. All firms produce an identical or homogeneous product.
Also, the internet has made barriers to entry lower.
As firms are of small size and are capable of producing close substitutes, they can leave or enter the industry or group in the long run. Imperfect oligopoly is found among producers of such consumer goods as automobiles, cigarettes, soaps and detergents, TVs, rubber tyres, refrigerators, typewriters, etc.
It is easy to compare the prices of books and buy from the cheapest. Thus the duopoly problem can be considered as either ignoring mutual dependence or recognising it. In other words, the individual seller is unable to influence the price of the product by increasing or decreasing its supply.
Thus his demand curve above the price P in the segment KP will be highly elastic. As there is keen competition in an oligopolistic industry, there are no barriers to entry into or exit from it.
This is completely different from the perfectly competitive market structure which excludes advertising. There is, however, slight difference between one product and other in the same category.
The reason is quite simple. Therefore, the point of intersection of the demand and supply curves that denotes the point of equilibrium between the two is taken as the price of the product.
The internet has enabled the price of many books to fall in price so that firms selling books on the internet are only making normal profits. WealthHow Staff In economics, a market structure is composed of various economic dynamics and variables, such as the seller, the buyer, the price, product sthe existence of competition, and the level thereof or the complete absence of it.Perfect competition is a market structure where many firms offer a homogeneous product.
Because there is freedom of entry and exit and perfect information, firms will make normal profits and prices will be kept low by competitive pressures.
If supernormal profits are made new firms will be attracted. Market structure has historically emerged in two separate types of discussions in economics, that of Adam Smith on the one hand, and that of Karl Marx on the other hand.
By Sean Masaki Flynn.
Part of Economics For Dummies Cheat Sheet. An industry consists of all firms making similar or identical products. An industry’s market structure depends on the number of firms in the industry and how they compete. Market structure is best defined as the organisational and other characteristics of a market.
We focus on those characteristics which affect the nature of competition and pricing – but it is important not to place too much emphasis simply on the market share of the existing firms in an industry. An oligopoly describes a market structure which is dominated by only a small number firms.
This results in a state of limited competition. The firms can either compete against each other or collaborate. By doing so they can use their collective market power to drive up prices and earn more profit.
The 4 market structures provide a starting point for understanding industry news, policy changes and legislation that help shape your investing decisions.Download