Market refers to the whole region where buyers and sellers of a commodity are in contact with each other to affect the purchase and sale of the commodity.
Forms of market structure
1. perfect competition
2. imperfect competition
Types of 3 imperfect competition
2. Monopolistic competition
perfect competition refers to a market situation where there are a very large number of buyers and sellers dealing in a homogeneous product at a price fixed by the market
EXAMPLE OF PERFECT COMPETITION
The closest example we may have for such kind of market can be the market for agricultural goods (like wheat and rice).In the case of wheat, there are numerous buyers and sellers(farmers).
In economics, imperfect competition refers to a situation where the characteristics of an economic market do not fulfill all the necessary conditions of a perfectly competitive market.
PERFECT COMPETITION VS MONOPOLY
|Number of sellers||There are a very large number of sellers and no individual seller has control over the activities of other firms.||There is a single seller and the monopolist has full control over the supply|
|Nature of product||The product is homogeneous,i.e.it is identical in all respects||There are no close substitutes for the product.|
|Entry And Exit||There is freedom of entry and exit.it leads to the absence of abnormal profits and losses in the long run.||There is a restriction on entry and exit so, a firm can earn abnormal profits and losses in the long run.|
PERFECT COMPETITION VS MONOPOLISTIC COMPETITON
|BASICS||PERFECT COMPETITION||MONOPOLISTIC COMPETITION|
|NATURE OF PRODUCT||The product is homogenous,i.e.it is identical in all respects like size, shape, quality, etc.||The products are differentiated based on brand, size, color, shapes, etc.|
|SELLING COST||No selling costs are incurred as buyers and sellers have perfect knowledge about market conditions.||Heavy selling costs are incurred on sales promotions due to a lack of perfect knowledge among, buyers, and sellers.|
|PRICE||Firms are prices-taker as the price is determined by the industry.||the firm has partial control over prices due to product differentiation|
MONOPOLY VS MONOPOLISTIC COMPETITION
|NUMBER OF SELLERS||There is a single seller. so, a monopolist has full control over the market.||There is a large number of sellers. so, a firm does not have much impact on the activities of other firms.|
|NUMBER OF PRODUCT||There are no close substitutes of the product||products are differentiated on the basis of brand, size, color, shape, etc.|
Oligopoly refers to a market situation in which there are a few firms selling homogeneous or differentiated products.
FEATURES OF OLIGOPOLY
1. FEW FIRMS:
Under oligopoly, there are few large firms. the exact number of firms is not defined. each firm produces a significant portion of the total output. there exits severe competition among different firms and each firm tries to manipulate both prices and volume of production to outsmart each other.
i,e the market for automobiles in India is an oligopolist structure as there are only of product.
Firms under oligopoly are interdependent. Interdependence means that the actions of one firm affect the actions of other firms. A firm considers the action and reaction of the rival firms while determining its price and output levels. A change in output or price by one firm evokes reactions
3. Non-Price Competition:
Under oligopoly, firms are in a position to influence the prices. However, they try to avoid price competition for the fear of price war. They follow the policy of price rigidity. Price rigidity refers to a situation in which price tends to stay fixed irrespective of changes in demand and supply conditions. Firms use other methods like advertising, better services to customers, etc.
4. Barriers to Entry of Firms:
The main reason for few firms under oligopoly is the barriers, which stop the entry of new firms into the industry.
5. Role of Selling Costs:
Various sales promotion techniques are used to promote sales of the product. Advertisement is essential and common under oligopoly. A firm under oligopoly relies more on non-price competition.
6. Group Behaviour:
There is complete interdependence among different firms in an oligopoly. Therefore price and output decisions of a particular firm directly influence the competing firms. Instead of an independent price and output strategy, oligopoly firms prefer group decisions that will protect the interest of all the firms.