Perfect Competition and Market Structure Essay

A modern industrial economy contains many rarities of market structures, which may be classified into regular market structures and special market structures. The regular market structures are perfect competition, monopoly, oligopoly, and monopolistic competition. Perfect competition occurs when a large number of sellers or producers of a good are present in the market, making the goods almost always available. The tendency in this market structure is that there are so many firms that none of them can individually affect the price of the product. This is a more common market structure in many modern economies today.

Usually, homogeneous or standardized products are found in this market structure. These products are so called homogeneous in the sense that they have similar characteristics and each one does not significantly differ from the other products. In many instances, these products are readily in demand by the market even if these products do not carry individual brands. Agricultural products are very good examples of these. Monopoly, in which a single firm produces the entire available products in an industry, is a markets structure that is dominated by that firm. Monopoly is a special case of imperfect competition.

It is a situation in which there is only one seller in a market. The monopolist firm usually has a very great influence over pricing and output decisions. Such cases are rare in most market economies today. Some regional and local firms tend to behave as a monopoly in their respective immediate markets, especially when these firms tend to be new and the first to offer a good or service in a specific area. These include local or regional cable operators, power companies and water utility firms that tend not to have competition in their area due to prohibitive costs of operation.

Monopolies may also be classified either as a natural monopoly or a legislated monopoly. A natural monopoly arises in the market due to being a sole producer with technical advantages, such as the economies of scale (lower costs at great production quantities) that come with greater firm size. A legislated monopoly, on the other hand, is created by the government legislation to cover patents, licensing, franchising provisions, or regulations on the rich. Only one firm is allowed to produce and market a commodity n a specific regional and market.

A natural monopoly may also be governed by legislation, but enjoys more freedom than a legislated monopoly, since it is not totally owned and is run mostly by people in the government. Oligopoly is that market structure characterized by very few sellers In the market making the product(s) price influence is great. Regulation is more often than not necessary in an oligopolies industry, due to the natural tendency of collusion among these firms. Theses government regulations are often geared towards encouraging these few rims to compete rather than to collude.

The oil and telecommunication industries in the Philippines are examples of this market structure. Unlike in monopolistic competition, each firm in an oligopoly is very aware of the others. Pricing and output decisions are based, in part, on predictions of the other firms’ reactions. If rivals cooperate in an oligopoly, they can achieve a Joint-monopoly solution. One cooperative method is to form a cartel to restrict individual and collective output. In a country like the Philippines, forming a cartel is punishable by law.

Monopolistic intention is a market structure in which there are enough sellers or producers and that each acts independently of the others, but are few enough that each tends to have a “monopoly’ of its own specific target market segments. The theory of monopolistic competition is applied to the analysis of differentiated products. Differentiated products are those that tend to be similar of nature and purpose, but are used differently and are generally preferred by specific groups of consumers.

A very good example of this type of market structure are non-food traditional products such as shampoo, soaps, and other cleansers. Although this products (and brands) belong to the same category, each product tends to have its own patrons, thereby allowing companies to have some “monopoly’ over their own respective markets. There are two special types of market structures existing in modern economies today. These are monopoly and oligopoly . They are categorized as special market structures since they are not commonly found in many industries nor economies.

Monopoly is very similar to a monopoly, except that instead of having a single seller, here is a single buyer in the industry. Some governments tend to participate this way in specific and sensitive industries. The purchase of armaments, nuclear technology and the like tend to be the monopoly of many governments, assuring that these products will not be readily available to the public for national security reasons and measures. Although there are private groups that also buy these items secretly from government, they tend to be more of illegal than legal groups.

Oligopoly is very similar to an oligopoly, except that instead of having a very few sellers in the industry, there are only very few buyers of a particular product. Usually, there exists a mutually beneficial relationship between oligopolies and oligopolies. This meaner that there are very few sellers of a product specifically being made for very few buyer of the same product. Transportation companies such as airlines and shipping lines tend to fall into industries with this market structure.

The matrix below presents the similarities and differences of the various regular and special market structures in terms of the type of product usually offered in the industry, the number of buyers ND sellers present, the barriers to entry and exit from the industry, and the relative influence on the price of the products sold in the industry. Activity


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