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However, economists look at the bigger picture, and so, they are always in pursuit of evaluating wider trends so as to understand the factors that motivate consumers to know how this information will impact a large segment of the population.
Therefore, according to them, the market structure is basically a manner in which markets are organized on the basis of a number of firms in the industry. There are four types of market structure, including monopoly, perfect competition, monopolistic competition and oligopoly.
Monopoly, as the name suggests, just has a single firm.
Perfect and monopolistic competition have a large number of small firms, whereas, oligopoly consists of fewer firms that are relatively large in size.
For the purpose of detailed understanding, oligopoly and monopolistic competitions have been explained in greater depth along with their major differences. Oligopoly As already discussed, it represents a structure, which contains a fewer number of relatively larger firms with substantial barriers to entry of other firms.
A high level of concentration is observed in the market as it is shared by a few firms. Firms, operating in an oligopoly market, do not have a lot of competition. Therefore, they have to consider the reaction of its close competitors while taking any business decision.
For example, if Texaco plans to increase its stake in the market by lessening the product price, it has to take into account the likelihood of its rivalries, like British Petroleum, reducing their prices as a consequence.
As far as the market strategy is concerned, firms in the oligopoly market structure have to take key decisions regarding prices and competition. For example, they have to figure out whether they wish to compete with competitors or come to a common understanding with them; it also includes a decision to change the price or keeping it constant.
The benefits of going Differentiating bewteen market structures or second are known as the first mover and second mover advantage. Sometimes, it is better to take the initiative as it enables a firm to make sufficient profits, and other times, it is better to wait and see what competitors have to offer.
Monopolistic Competition On the other hand, in a monopolistic competition, the structure contains a large number of small firms that can exercise a freedom of entry and exit. In this model, every firm has multiple competitors, yet, each one of them offers slightly different goods.
In this cluster of enterprises, each one takes independent decisions about the price and outcome by keeping in mind the market it operates in, a product it sells, and the related cost of production. The main feature of this market structure is the ability of its products to be differentiated in four categories, including marketing differentiation, human capital differentiation, differentiation through distribution, and physical product differentiation.
Since all the firms involved in monopolistic competition offer unique products, it enables them to charge a lower or higher price than their competitors, which also indicates that demand curve will be plunging. Under the monopolistic competition, firms usually go for advertising to market their products, because of the high level of competition with their rivalries.
Advertising helps them in introducing the distinctive features of their product as compared to the rest of the market. Moreover, such firms are considered to be profit maximizers. This is because their businesses are smaller, which allows them to keep their focus in managing a business.
Differences Both monopolistic competition and oligopoly depict an imperfect competition. Following are some of the major differences between these two market structures: Market Size and Control The main difference between both the market structures is a relative size and market control of these firms on the basis of a number of competitors in a particular market.
However, there is no dividing line between these structures, for example, there is no clear definition of how many firms should there be in a market in order for it to be a monopolistic competition or oligopoly market. Dominance — An Indicator of the Structure There are a few cases where it is the dominance of some firms that determines the type of structure a market has.
For example, an industry that consists of relatively same firms is mostly considered as a monopolistic competition, whereas, an industry with the same number of firms, out of which, only 4 are relatively large and dominating, is known as the oligopoly market.
The most prominent example of oligopoly market is petroleum industry, wherein, despite having a large number of companies, the market is dominated by a few major companies.
Geographical Area Another feature that distinguishes the monopolistic competition from oligopoly is a geographical area. It is a key factor in identifying a market structure. It is possible that a particular industry falls into a category of oligopoly market if it lies in a small city, and a monopolistic competition if it has a presence in a large city.
An example of this can be a retail market. If you shop in a large city, you will have hundreds of thousands of shopping alternatives, including shopping malls, supermarkets, mini marts, and nationwide retail chains.
Such a market represents a monopolistic competition. Small towns are comparatively less equipped with such retail outlets and have only a few stores. It may only have one shopping mall and a small number of stores present in a downtown area. Such a structure is called oligopoly.
Barriers to Entry As it has already been discussed, oligopoly represents high barriers to entry as compared to the monopolistic competition, but it is a matter of degree. The key element that can give rise to oligopoly market is a requirement for government authorization, especially in circumstances where entry is restricted to only a few firms.Differentiating Bewteen Market Structures There are different classifications of markets and the structure of a business determines which classification it will fall into.
Markets are divided according to the composition of the business and what it provides to the specific market. Nov 03, · The main difference between both the market structures is a relative size and market control of these firms on the basis of a number of competitors in a particular market.
However, there is no dividing line between these structures, for example, there is no clear definition of how many firms should there be in a market in order for it to be a. Differentiating Between Market Structures ECO/ Principles of Microeconomics August 30, Differentiating Between Market Structures Retail sales are indicators of microeconomic conditions presented in a given area at a particular place in time.
Since Sam Walton opened his first Wal-Mart store, Wal-Mart has been making ripples throughout the micro economies of America. A Differentiating Between Market Structures Table and Questions Axia College Material Appendix C Differentiating Between Market Structures Table and Questions Fill in the matrix and describe differences in public and private goods, common resources, and natural monopolies.
o Differentiating Between Market Structures in an Organization of Your Choice Read the instructions in the University of Phoenix Material: Differentiating Between Market Structureslocated on the student website.
Identify the market structure in which this organization competes. Clearly indicate why the market structure was decided upon and how this market structure differentiates from the other alternatives.
Describe the level of competition the organization will face if under each of the following market structures.