Economics World Bank Questions Medium
There are four main types of market structures: perfect competition, monopolistic competition, oligopoly, and monopoly.
1. Perfect competition: In a perfectly competitive market, there are many buyers and sellers, and no single participant has control over the market price. The products sold in this market are homogeneous, meaning they are identical and indistinguishable from one another. Entry and exit into the market are easy, and there is perfect information available to all participants.
2. Monopolistic competition: Monopolistic competition is similar to perfect competition, but with one key difference. In this market structure, products are differentiated, meaning they are similar but not identical. Each firm has some control over the price of its product due to product differentiation, but there are still many competitors in the market.
3. Oligopoly: An oligopoly market structure is characterized by a small number of large firms dominating the market. These firms have significant market power and can influence prices. There are barriers to entry, making it difficult for new firms to enter the market. Oligopolies often engage in strategic behavior, such as price fixing or collusion, to maintain their market power.
4. Monopoly: A monopoly exists when there is only one seller in the market, giving them complete control over the price and supply of the product. Barriers to entry are high, preventing other firms from entering the market and competing. Monopolies can lead to reduced competition, higher prices, and lower consumer welfare.
It is important to note that these market structures exist on a spectrum, and in reality, most markets fall somewhere between these idealized structures.