Four Types of Market Structures Comparison - Essay Example

Perfect competition. There are many sellers that one seller’s decisions do not have any impact on the pricing of products and services in the market. Products and services are homogenous. Sellers in this market have identical commodities. Firms in this market are price takers. Firms do not have any influence on the market prices of commodities. There are no barriers to entry in a competitive market. Firms can freely enter and exit a competitive market.

Monopolistic. There are many firms. Each firm owns a percentage of the total market share. Furthermore, products are differentiated in pricing strategies, style, brand name, advertisement, and packaging. Here are no barriers to entry and exit.

Monopoly. There is a single seller such that the industry and firm are synonymous. Monopoly markets have unique services and products that do not have close substitutes. The firm in a monopoly market is the price maker and has considerable control over the price as it can control the supply of the product. Monopoly markets have barriers to entry and exit.

Oligopoly. There are few large firms with each firm considerate of its rivals’ decisions and reactions to its decisions regarding output, advertising, and prices. Products in an oligopoly market are differentiated. There are barriers to entry in this market due to the requirement of huge capital investments and economies of scale.

Perfect Competition. Individual firms in a perfectly competitive market view their demand as perfectly elastic that is a horizontal line at the market price level. However, the industry demand curve is not perfectly elastic. The demand curve is perfectly elastic for individual firms because they are price takers regardless of the quantities they produce. This explains why the demand curve for firms in a competitive market is a horizontal line at the market price.

Monopolistic.  The demand curve of firms in a monopolistic market is highly elastic, but not perfectly elastic. The demand curve is more elastic than the monopoly’s demand curve as sellers have many competitors producing close substitutes. However, the demand curve is less elastic than the perfect competition demand curve because products are differentiated.

Monopoly.  The monopoly demand is the industry demand and is downward sloping. Prices exceed marginal revenues because the monopolist firm must reduce prices to increase sales. The additional revenue is the price of the last unit minus the sum of the price cuts, which firms take on all previous units of output. The marginal revenue curve of a monopolist is below the demand curve.

Oligopoly. Due to competition from rival firms who have a considerable market share, price rises are unmatched while rivals match price cuts. Firms in an oligopolistic market view their demands as elastic for price increases and inelastic for price cuts. Firms in this market face kinked demand curves. This examination clarifies the fact that in some oligopolistic markets, prices tend to be inflexible.