The four main market structures include the perfectly competitive model, monopolistic competition, monopoly, and oligopoly. The perfect competitive structure stands out due to features like many sellers and buyers, each exhibiting an excellent comprehension of the market.
The sellers and buyers know the prices charged for all the items on offer in the market, where the prices are purely determined by the natural interaction of demand and supply forces. The existence of many buyers and sellers, excessive freedom of entry to both buyers and sellers, and the desire to maximize profits among individual sellers in agriculture markets are typical of a perfect competition fair.
The monopolistic competition market structure is the typical market fair where sellers offer similar items that are differentiated to stand out among individual buyers. The monopolistic competition fair lies between a perfectly competitive market structure and a monopoly. There are many sellers and buyers in the monopolistic competition model, like in the perfect competition fair.
However, the players do not have a uniform knowledge of the market, forcing the sellers to differentiate their items and advertise them to attract customers and maximize profits. Consequently, a critical feature of the monopolistic competition market is the existence of favorite brand(s) among buyers, while no one can tell the real difference between the various items in the market.
The global restaurant industry offers an excellent case of a monopolistic competition platform. The restaurants provide differentiated meals and menus to the same pool of customers, for example, as a way of standing out.
On the other hand, a monopoly market structure involves a single seller and many buyers. The term ‘monopoly’ implies such a setting, where ‘mono’ means one, and ‘poly’ stands for a seller, creating the ‘one seller’ meaning.
Monopolies further assume different forms, including pure monopoly, natural, and state monopoly. All these kinds of monopolies have unique features that distinguish them. A market where a single seller supplies a particular product, forming a single player’s industry, for example, constitutes a pure monopoly. Pure monopolies, however, hardly exist in the real world as several players almost always engage in specific industries to compete.
A supplier in a specific location where they offer a unique product alone operates as a natural monopoly. A state monopoly further exists when the government has complete proprietorship of particular industries in a nation. Microsoft Corporation is an example of a pure monopoly based on its control of about seventy-five percent of the global tech industry.
Other examples of monopolies worldwide include Google Inc. and Intel Inc., which operate and dominate the IT sector. Oligopoly further occurs when a small number of influential players sell essential homogeneous products to many buyers. Smartphone operating system developers constitute an example of an oligopoly.