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By looking at the different
resources, we discovered that there are four main types of market structures:
perfect competition, monopolistic competition, oligopoly, and monopoly. The
meaning of market structure term is referring to the characteristics of itself,
competitive or either organizational, tells about the competition type and
price policy according to the market (Businessjargons, 2015). The main purpose of
our essay is to describe and compare each of them, and to make a final

There are some key
points to define the market structure. Firstly, it is important to be aware of
the number of sellers and buyers. Secondly, the goods and services provided by
the firms. Then, the ratio of the interest divided among companies and ways to
enter and exit the market. After that, it is vital to know the efficiency of
the company and all explicit costs. Of course, we should not forget the quality
of services and how they are offered to the buyer, how it differs from other

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To begin with, we
shall describe the perfect competition structure. The definition of this market
implies a market with a huge amount of buyers and sellers trading exactly the
same homogenous unbranded product, where each of them is a price taker (Mankiw, 2007). Each unit, for
instance, workforce is also identical. At this particular type of market, every
firm produces ascertain amount of goods along with the lowest possible price,
as it is not capable of influencing the price of the market or its conditions. The
main goal of any competitive firm is, of course, profit maximization. At this
particular type of market, every firm have super-normal profits or losses.
Profit-maximizing producer faces a market price, which equals to its marginal
cost, which means that factor’s price is equal to the factor’s marginal revenue
product. Speaking about the revenue of competitive firm, it is clearly visible
that it is proportional to the quantity of output because of the same price.

This market also has
two great options: it is free to enter and free to exit. When it refers to the full
exit from the market, this is when firm leaves the market on a long-run basis. In
this case, the firm loses all its revenue from product sales, but it saves much
more on variable and fixed costs needed for production. It happens when the
average cost of production is bigger than the actual price of the good. To
enter the market on a long-run basis, it should be vice-versa: the price of the
good produced should be bigger than the average cost of production. In the case
of short-run exit, it occurs when any firm decide to stop its production for
specific time period because of market circumstances. Here firm loses revenue
and saves variable costs, but it is still have to pay fixed costs. The both
procedures of entry and exit the market will end only in case of the average
total cost and price equity. During the short-run, firms at this market are not
always productively efficient. In that case output does not occurs where
marginal cost equals to average cost. In the long-run period productivity
efficiency occurs every time any new firm enters the market.

One more very
interesting feature is called perfect knowledge or perfect information. In
economics, when it refers to perfect competition, it implies that all consumers
and producers have a knowledge of the price, methods of product production,
utility, and quality, while speculating about the free markets system structure
and how financial policies can affect them. (Wikipedia, n.d.). The availability of
perfect knowledge allows both consumers and producers make rational decisions,
which helps to maximize the supplier’s utility and profit for goods producers.
What is more, for third parties there are no externalities, which means that no
external costs or other benefits can be given to the third face. (Economicsonline,
Also, in a perfectly competitive market there are zero transaction costs. This
means that while goods exchanging buyers and sellers do not incur any costs. (Wikipedia,

As an example of a
perfect competition, we shall describe the market of milk. Any buyer is able to
influence the market price of milk because the amount the buyer purchases is
very small relatively to the market size. Consequently, no one of milk sellers
can change the price, because each seller offers exactly the same product. There
are no reasons to charge less price and if the seller decides to charge more, it
will lose customers. (Mankiw, 2007)

If any producer
decides to increase the price, it will probably have this situation:

Oligopoly is a market situation in which control over the supply is held
by a number of companies or organizations that are able to influence prices of
goods and directly effect on the position of the competitors. The UK definition
of an oligopoly is 5 firm concentration ratio of more than 50%. There are many
examples of oligopoly such as commercial air travels, cable television, auto
industry etc. Some oligopolistic company produce identical types of good, while
other produce differentiated products more similar to monopolistic competition.
The first kind of organizations called “Identical Product Oligopoly” and
another is “Differentiate Product Oligopoly”. Companies in oligopoly could be
competitive on price. In some cases, companies try to cut prices in order to
increase competitiveness. A feature of many oligopolies is selective price
wars. The best example of it are supermarkets that always compete on price of
goods like bread and meat but set high price for the goods like cakes,
exclusive shampoos and soaps. The main characteristic of oligopolistic market
structure is a small number of sellers, but enough that every of them can
influence the market and difficulty for a small, bad-known companies to enter
that market.

In some cases, firms which operate in oligopolistic market form cartels.
The main aim of such alliance is to maximize profit by fixing the price,
limiting supply and other possible restrictions. Typically, cartels are
controlling the price. From times to times, they are organized to control the
price of inputs purchasing (Wikipedia, n.d.). The example of a
cartel tend to be trade organizations, especially in industries, where a huge
variety of companies dominates.

monopoly is one of the market structures that is understood with the following
conditions: the production of one particular good is controlled by only one
seller. Where the buyers usually do not have an alternative to choose,
therefore they are expected to purchase the monopoly enterprise products. There
is no needs in advertising. Because the product produced by these type of the
markets is unique and has no other substitutes, whose markets could have a
significant impact on the market of this product. Also, there is no
competition. It can be said that a monopolist has a kind of power on the
market. Especially by setting up and fully controlling the prices and deciding
the amount of goods to be produced. Monopoly also exists in the condition when
the entrance or inflation of other firms in the market is unsusceptible and
economically inefficient. The absolute monopoly is a very unusual phenomenon,
especially within the country. As an example of a net monopoly, public
utilities, communal services and utilities such as gas, electricity, water
supply and others. For instance, as the example for small villages or towns it
might be only one store in this area, the owner of public transport, airport or
railway station are usually considered. In a real life monopolists are usually
granted with some exclusive privileges by government. But at the same time, the
government still has the right to regulate the actions of such enterprises,
without allowing abuses on their part. Also, some large corporations that
dominate the industry may be classified as monopolies. (Modern Economy, n.d.)


A monopolistic competition is the type of a
market where a huge number of firms offer the same product, but each of them is
not a perfect substitute to another. While there is a great variety of consumers
and suppliers, no one can take totally full control over the market price (wiki, n.d.). Any MC firm can
raise prices without loosing costumers. They also are capable of lowering the
price, but without possible war for the price. Similarly to perfect
competition, firms are free to enter and exit the market. Firms can enter while
existing companies making super-normal profits during the long-run. Following
this, the supply will increase and the price will reduce, which will left existing
firms with normal profits only in a short-run. Analogous, if the existing firms
are sustaining losses, some of the firms may exit. Therefore, it will reduce
the supply while price would rise and the existing firms will be left only with
normal profit. Every firm at this type of market is a price maker , because
every good is highly differentiated (Economicshelp,
Also their demand is inelastic. 

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