Econ: Market Structure Characteristics

Market Structure Types

Based on the four main characteristics, economists have identified four basic market structures: perfect competition, monopolistic competition, oligopoly, and monopoly.

Perfect competition is the most efficient and competitive market structure. It consists of many producers who provide identical goods, usually referred to as commodities. Prices are established by the interaction of supply and demand.

Monopolistic competition is a market in which many producers provide a variety of similar goods. Such markets are characterized by the use of nonprice competition to differentiate products and build brand loyalty. To the extent that firms monopolize their own brands, they may have some control over prices, but such markets remain relatively competitive.

An oligopoly is a market dominated by a small number of producers who provide similar, but not identical, goods. Firms in an oligopoly often set prices based on other firms’ pricing decisions. Because oligopolies can dominate markets, their effect may be much like that of a monopoly.

A monopoly is the opposite of perfect competition. In a monopoly, a single producer provides a unique product and therefore has significant control over prices. The government permits certain linds of monopolies to exist because they are believed to serve the public interest.



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