Brief Insight of Market structure

A market is a set of buyers and sellers, commonly referred to as agents, who through their interaction, both real and potential, determine the price of a good, or a set of goods and services. The concept of a market structure is therefore understood as those characteristics of a market that influence the behaviour and results of the firms working in that market.

The main aspects that determine market structures are: the number of agents in the market, both sellers and buyers; their relative negotiation strength, in terms of ability to set prices i.e. either price taker or price maker; the degree of concentration among them; the degree of differentiation and uniqueness of products; the way of entering and exiting the market. The interaction and differences between these aspects allow for the existence of several market structures, from which we can highlight the following:

Perfect competition: 

Perfect competition (sometimes called pure competition) describes markets such that no participants are large enough to have the market power to set the price of a homogeneous product.This market is considered to be unrealistic but it is nevertheless of special interest for hypothetical and theoretical reasons.

Features of perfect competition

·                     A large number buyers and sellers

·                     No barriers of entry and exit

·                     Homogeneous products

·                     Zero transaction costs

·                     Perfect information

Imperfect competition:

Imperfect competition which includes all situations that differ from perfect competition. Sellers and buyers can influence in the determination of the price of goods, leading to efficiency losses. Imperfect competition includes market structures such as:

·                     Monopoly- it represents the opposite of perfect competition. This market is composed of a sole seller who will therefore have full power to set prices.Example Indian railways.

·                     Oligopoly- in this case, products are offered by a series of firms. However, the number of sellers is not large enough to guarantee perfect competition prices. These markets are usually studied by analysing duopolies, since these are easier to model and the main conclusions can be extrapolated to oligopolies.Example  Mobile networks, Cement industry,automobile industry.

·                 Duopoly- a special case of an oligopoly with two firms with maximum market share. Example- Pepsico and Coco-cola

·                     Oligopsony- is a market form in which the number of buyers is small while the number of sellers in theory could be large.One example of an oligopsony in the world economy is cocoa, where three firms (Cargill, Archer Daniels Midland, and Callebaut) buy the vast majority of world cocoa bean production, mostly from small farmers in third-world countries. 

·                     Monopsony- is a market form in which only one buyer interfaces with would-be sellers of a particular product.Example - military industry, space industry.