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.
Monopoly
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
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.
Perfect Competition
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.
Monopolistic Competition
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.
How Price Is Determined
The price of a good tells us the value of that product in terms of money. A rational consumer will try
to get the greatest value for money spent on goods and services. He will therefore weigh and compare
the prices of commodities before making a decision to purchase.
Prices in a market economy are determined by the level of demand and the level of supply for each
particular product.
The demand for a particular product is the amount that consumers are willing and able to buy at a
given price. The law of demand states that when prices are high demand will fall and when prices are
low demand rises ceteris paribus (meaning all other things remaining unchanged.).
The supply of a particular commodity is the amount that firms are willing and able to supply at a
given price. When prices are high supply will rise and when prices are low supply fall. Suppliers are
willing to sell more at higher prices as profits will be high, and unwilling to sell large quantities when
prices fall because of low profit margins.
The equilibrium price in a particular market is the price at which consumers and suppliers are
willing to trade a certain quantity of a commodity. For example, consumers are willing to buy 55
litres of milk at $3 and suppliers are willing to supply 55 litres at that price. If the price increases to
$4 there will be a fall in demand to 30 litres as some consumers are not willing to buy milk at this
price.
Illustrating Price Equilibrium
The demand and supply curves are drawn from the demand and supply schedules. Price is measured
on the vertical axis and quantity on the horizontal axis. The demand curve slopes downwards from
left to right and the supply curve slopes upwards from left to right. The intersection of the two
curves indicates the equilibrium price and quantity.