Market Structures There Are Two Main Market

Market Structures There are two main market structures in the market known as monopolistic competition as well as oligopoly. They fall between the extreme of real competition and pure monopoly. The two structures are vital because they provide descriptions of companies and industries that are found worldwide. The market structures differ as each one has different characteristics associated with either monopoly or oligopoly. Oligopoly Market Structure The first characteristic associated with oligopoly is there that there are a few, large companies that dominate the market.

Another element is the production of identical commodities that are similar as well as significant obstacles to entry. The market structure is associated with interdependence of decisions regarding production within the market. Such a market where a small number of companies control the supply to a whole market (Papandreou 1999).Each company produces a similar product. The market structure does not only rely on the larger producers but recognize their interdependence.

This is because the activities of one producer affect the schedules of others; hence, each oligopoly business watches their competitors closely. Oligopolies compete aggressively to gain a big percentage of shares in the market; thus the competition for current or new customers is intense. The reason for such an act is that the products produced by each producer are similar. The situation makes oligopolies have little control of the market price.

For instance, Shells petrol is similar to Mobil petrol; hence these two firms watch each step taken by the rival company closely. Oligopoly firms try to make their products look different in the eyes of the consumers. This element can be attained by using various means. First the provision of quality goods and services and different packaging like wrapping brings the dissimilarity among the companies concerned. At times, the companies can opt to offer prizes or bonus after a purchase.

The method can make a customer notice the difference between two companies offering a similar commodity. If there is a more commodity differentiation among firms that are associated with the oligopoly market structure, then there is a higher chance a company becoming independent unlike their rivals when setting a product price and output. It is challenging for new companies with a limited market share to gain entrance into the oligopoly market, and engage in production that is enough to make the commodities cheap for customers to buy.

The small amount from leading firms can produce large quantities to enable all customers in need of the product to make enough purchase. It is challenging for new companies to have large market shares than existing producers. This is mostly in instances that the companies have large advertising financial budgets, design patents; licenses and unlimited access to the raw materials Oligopoly as market structure are mainly susceptible to restraining trade practices. Monopoly Market Structure Monopoly market structure is associated with one seller of a commodity in a market.

This means that the commodities produced have no substitutes as there are risky barriers to entry. Another element of the market structure is complete control in regard to price of a commodity. A monopoly industry has one supplier when it comes to the provision of goods and service. The situation makes the entrance of new firms into the market challenging (Kinokuni 1999).Being one supplier in the market; the companies enjoy the freedom of choosing the demand curve where the industry will operate.

This can be done by determining the price of the commodity or the amount of the commodity quantity to be sold in the market. They can decide to sell at a lower price or a higher price depending on maximizing the total profits of the firms. The key feature of a monopoly is the presence of barriers inhibiting the entry of new companies in the market.

Barriers to entry comprises of control over essential raw materials, tax protection from importers, defensive government legislation, low price to avert competition and large research and budgets. All these elements assist monopolists to preserve their technological advantages above their potential rivals. Presence of limited competition makes advertising concentrate on public relations and sponsorship of main sports events. Even though there is some price rivalry in an oligopoly market system the price remains high, as businesses compete with each another.

The choice in such a market system is better compared to monopoly where there is only a single (Caves & Porter 1978). In a both monopoly, and oligopoly the price of the commodity is high because of one producer. A monopoly having one seller, there is no substitute, hence limited pressure to develop their products. Unlike in oligopoly the product quality is excellent as businesses compete with each other to.