Economists use models to discuss market behavior. There are four basic market structures or models under which business and consumers compete through a system of prices. Perfect competition is a market in which no buyer or seller has market power. In perfect competition, many firms sell goods that are perfect substitutes for one another. Many sellers and buyers of a standardized product and the price setters are also the price takers.
There is no much investment on advertising and free flow in information, there are no barriers to exit or enter the market. However, this is an ideal market and barriers rarely lack in real markets. Examples are the stock markets. Monopoly: A firm is said to be in a Monopoly when it is the only firm selling the good and the good has no close substitutes. These companies are like the power utilities companies and cable TV. Oligopoly is the only structure in which firms are interdependent, and each firm’s quantity sold affects the market significantly.
Commercial banking, medical care, computer, auto manufacturing, and airlines are some of the examples. Cartels are also examples of oligopoly even though they behave like monopolies in the market. A cartel is a group of firms that agree to coordinate their production and pricing decisions. During the 1970s, Organization of Petroleum Exporting Countries (OPEC) was an example of a major cartel. Real world markets are heavily populated by oligopoly in the form of mergers
Monopoly companies these are those that are the single most seller of a certain product were there is no close substitute. There are also companies that have a market structure that shows a monopolistic competition. These are the price makers and invest in heavy competition. Examples are the beauty shops, fast food restaurants, and clothing and movies industries. The perfect competition companies are those which have many sellers and buyers of a standardized product and the price setters are also the price takers.
There is no much investment on advertising and free flow in information, there are no barriers to exit or enter the market. However, this is an ideal market and barriers rarely lack in real markets. Examples are the stock markets. References Fischer, Charles C. “What Can Economics Learn From Marketing’s Market Structure Analysis? ” Journal of Managerial Issues. (n. d. ). Riley, Geoff. “Market Structures – Summary. ” September 2006. Tutor2u . 17 JULY 2010 ;http://tutor2u. net/economics/revision-notes/a2-micro-market-structures-summary. html;.
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