MARKET structure: definition and classification

In our current world it is vital to understand the economy, since without it we are incapable of understanding the markets that affect our lives every day. One of the most important elements of the economic market is its structure, so to understand them in this lesson from a PROFESSOR we are going to talk about the market structure: definition and classification.

The market structure is the set of the different characteristics that make a type of market unique, varying in type depending on the class of elements that form it, such as the number of buyers, sellers and even the characteristic organizational form it has.

It should be taken into account that each market is a totally different world, so it is difficult to group them into groups based on their great differences, but thanks to market structures we can differentiate them by a series of characteristics common.

The great importance of the market structure is based on its ability to analyze the different characteristics of a specific market

, allowing the different economic agents to know the possibilities of success they may have when entering to participate in a certain market.

As for the various factors that determine if a market is of one kind or another we can find some of the following:

• The number of economic agents, whether they are buyers or sellers, who participate in the different market activities.
• The power that each of the market participants have, depending on their ability to negotiate before, and there may be control from the state.
• The product sold is another factor when talking about the market structure, depending on the differences between the products of the different companies that make up the market.
• The entry and exit barriers, since the difficulty to enter the market is an important factor of the market structure.

When talking about the definition and classification of the market structure, we must talk about the two main forms of market, existing the perfect competition and imperfect competition.

Perfect competition is a market situation, quite implausible, in which the market is regulated by the existence of the law of supply and demand, there is a perfect regulation of prices, and in which there is no type of market failure.

The great difficulty of having a perfect market means that it is usually used more as a theoretical model than like the real thing, but it's still interesting to see the different elements that would cause a perfect market. The conditions of perfect competition are as follows:

• Large number of consumers and producers, so neither has a great influence to modify the market price.
• The product of all producers is similar, there are no major differences between one and the other. Being an example of this that there should be very little marketing and advertising, since it creates a differentiation.
• The entry barriers there are few or none, so it is easy for new companies to appear.
• There is no privileged information, being complete and accessible information for everyone.
• Prices vary thanks to the law of supply and demand, self-regulating the price.

The other kind of market structure are the imperfect ones, being all those in which a company or a few have so much influence that they can vary the market price at their pleasure. There are several kinds of imperfect competencies, and for this reason we are going to talk about some of them below.

Monopoly

The monopoly it is a type of imperfect market in which there are several buyers but only one seller, with only one product and therefore having the producer almost absolute control over the fixation of the good or service in question.

Duopoly

A type of market similar to a monopoly but in which instead of a single production company there are two, for some economists is a middle ground between monopoly and perfect competition, while for others it is just a variant of the monopoly.

Oligopoly

There are few sellers but many consumers, there is no such abusive control as in a monopoly, but even so the producers can have a great influence on the questions regarding the price of the products. goods. Sometimes the oligopoly can be provoked, joining several companies in the same sector in a kind of group in which the entry of competitors and causing the rise in prices for greater profits of companies involved.

Monopsony

It is the opposite of monopoly, with only one buyer but many sellers, this being the case of the market in which the consumer has the greatest power. It is a strange kind of market, being generally referred to specialized and very specific jobs.

Oligopsony

A market in which there are a few buyers but many sellers, being a similar case but not so extreme to monopsony. It could be said that the oligopsony is to monopsony what oligopoly to monopoly.

Monopolistic competition

A market with a large number of producers but without a control that can control the different companies. There are differences between the products, so elements may vary, but there are still similarities that make the products similar.