Unit-4 Types of Markets POE | BBA First Year

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Types of Markets and there characteristics 

• Different types of market structures will characterize and economy. Such market structures essentially reflect the degree of competition in the market.
• There are also other determinants of market structures such as nature of goods and products, number of sellers, number of consumers, nature of product or service, economies of scale etc. We will discuss four basic types of market structures Any economy.
• One thing to remember is that not all market structures of this type actually exist. Some of them are merely theoretical concepts. But they help us understand the principles behind the classification of market structures.

1. perfect competition

• In a perfectly competitive market structure, there are a large number of buyers and sellers. All the sellers in the market are small sellers competing with each other. There is no single major vendor with any significant influence on the market. So in such a market all companies are price takers.
• There are centain assumptions when discussion the perfect competition. This is the reason a perfect competition market is pretty much a theoretical concept.

There assumption are as follows

• The products available in the market are homogeneous, i.e. they are completely similar
• The aim of all firms is to earn maximum profit only.
• Entry and exit here is free market, i.e. there are no barriers
• And there is no concept of consumer preference

2. Monopolistic Competition

• This is a more realistic scenario that actually happens in the real world. In monopolistic competition, there are still a large number of buyers and sellers. But they do not all sell homogeneous products. The products are similar but all vendors sell slightly different products.
• Now consumers have got preference to choose one product instead of another. Sellers may also charge slightly higher prices because they may enjoy some market power. Therefore sellers become price setters to some extent.
• For example, the grain market is a monopolistic competition. All the products are similar but slightly different in terms of flavor and taste. Another such example is toothpaste.
  

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3. Oligopoly

• In oligopoly, there are only a few companies in the market. Although there is no clarity regarding the number of firms, 3-5 major firms are considered ideal. Hence in case of oligopoly, the buyers are much larger than the sellers.
• In this case companies either cooperate together to compete with each other, they use their market influence to set prices and in turn maximize their profits. Therefore consumers become price takers. In oligopoly, there are various barriers to entry into the market, and new companies have difficulty establishing themselves.

4. Monopoly

• In a monopoly type of market structure, there is only one seller, so a single firm will control the entire market. He can set any price he wants because he has all the market power. Consumers have no choice and have to pay the price set by the seller.
• Monopoly is highly undesirable. Here the consumer loses all his power and market forces become irrelevant. However, pure monopoly is very rare in reality.

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