Management Market Structures Meaning, Types and Essential Features

Glide to success with Doorsteptutor material for IAS : Get detailed illustrated notes covering entire syllabus: point-by-point for high retention.

Download PDF of This Page (Size: 138K)

Management Market Structures (Management)

Meaning

  • Market structure refers to the nature and degree of competition in the market for goods and services.

  • The structures of market both for goods market and service market are determined by the nature of competition prevailing in a particular market.

The Essential Features of a Market Are

(1) An Area:

A market does not mean a particular place but the whole region where sellers and buyers of a product are spread.

(2) One Commodity:

A market is not related to a place but to a particular product.

Hence, there are separate markets for various commodities. For example, there are separate markets for clothes, grains, jewellery, etc.

(3) Buyers and Sellers:

The presence of buyers and sellers is necessary for the sale and purchase of a product in the market.

(4) Free Competition:

There should be free competition among buyers and sellers in the market. This competition is in relation to the price determination of a product among buyers and sellers.

(5) One Price:

The price of a product is the same in the market because of free competition among buyers and sellers.

Types of Market Structures

Types of Market Structures

Types of Market Structures

Types of Market Structures

Perfect Competition

  • Perfect competition describes a market structure, where a large number of small firms compete against each other.

  • A single firm does not have any significant market power.

The perfect competition builds some assumptions as follows:

(1) all firms maximize profits

(2) there is free entry and exit to the market,

(3) all firms sell completely identical (i.e., homogenous) goods,

(4) there are no consumer preferences.

Monopolistic Competition

  • Monopolistic competition also refers to a market structure, where a large number of small firms compete against each other.

  • Monopolistic competition sell similar, but slightly differentiated products.

  • That gives them a certain degree of market power

Monopolistic competition builds on the following assumptions:

(1) all firms maximize profits

(2) there is free entry and exit to the market,

(3) firms sell differentiated products

(4) consumers may prefer one product over the other.

Oligopoly

  • An oligopoly describes a market structure which is dominated by only a small number of firms.

  • That results in a state of limited competition.

  • The firms can either compete against each other or collaborate so, they can use their collective market power to drive up prices and earn more profit.

The oligopolistic market structure builds on the following assumptions:

(1) all firms maximize profits,

(2) oligopolies can set prices,

(3) there are barriers to entry and exit in the market,

(4) products may be homogenous or differentiated,

(5) there are only a few firms that dominate the market.

Unfortunately, it is not clearly defined what a few firms means precisely.

Monopoly

  • A monopoly refers to a market structure where a single firm controls the entire market.

  • In this scenario, the firm has the highest level of market power, as consumers do not have any alternatives.

  • As a result, monopolies often reduce output to increase prices and earn more profit.

The following assumptions are made:

(1) the monopolist maximizes profit,

(2) it can set the price,

(3) there are high barriers to entry and exit,

(4) there is only one firm that dominates the entire market.

MCQs

1. Which of the following describes a market structure where a small number of firms compete against each other?

a. Perfect Competition

b. Monopolistic Competition

c. Oligopoly

d. Monopoly

Answer: c. Oligopoly

2. Which of the following market structure the single firm controls the entire market?

a. Perfect Competition

b. Monopolistic Competition

c. Oligopoly

d. Monopoly

Answer: d. Monopoly

#Market Structures

#Types of Market Structures

#features of market structures

#marketing management

#NET

#management

Developed by: