Types of Market Structures
The term market structure refers to the level of competition experienced by businesses in an industry. This factor determines the nature of the product sold, how easy it for new businesses to enter that industry and the amount of information available concerning that industry.
A monopoly exists when only one supplier has control over an entire market for a particular good or service. Examples of monopoly in Caribbean countries are a single electricity and water supplier which may be owned by the government or a private company.. The monopolist sells a product for which there are no close substitutes. The monopolist controls the market because it is difficult for other firms to enter such industries. The challenges include high start-up costs and difficulty in obtaining strategic raw materials or information regarding business operation. The monopolist has great market power and can therefore set the price of products sold in the market.
Oligopoly describes a market structure in which there are few large firms. They offer the same product for sale and compete aggressively for market dominance. Examples of firms in this market structure are telecommunications and petroleum companies. Entry into this industry is also difficult as start-up costs are very high, there is control of strategic raw material and information is not easily available.
This market structure is characterized by many buyers and many sellers of a product. The product is not unique as it is available from many sellers. Firms in this market structure are price takers as they cannot sell above the price of their competitors. Firms must accept the market’s price as there are several competitors. There is perfect knowledge about the business and there are no barriers of high start-up cost and control of strategic raw materials.
Similar to perfect competition this market structure involves many sellers. However, this market structure differs from perfect competition in that each firm sells a branded product. Firms in this market structure are a monopolist for their brand. There is freedom of entry and exist into the industry as there are no barriers such as strategic raw material, very high start –up cost and lack of information.