Micro economics Market Structures

Abstract

This paper is based on the different market structures that come under the microeconomics. Market structures means ways in which industries and markets are controlled. Market structures are mainly based on the number of firms in the industry or market and the degree to which market is controlled by each firm. The most important features of the market structure are Number of the firms, Market share of the large firms, the nature of the costs, the extent to which the industry is integrated vertically, and the arrangement of the buyers within the industry and the level of product differentiation.

Table of Contents

Abstract2

Table of Contents3

Introduction4

Discussion7

Pure competition9

Monopolistic competition12

Oligopoly15

Monopoly17

Monopsony19

Conclusion21

References22

Micro economics Market Structures

Introduction

Market structures means ways in which industries and markets are controlled. Market structures are mainly based on the number of firms in the industry or market and the degree to which market is controlled by each firm (Tutor2u, 2012). Market structure is basically defined as the numerous characteristics of the market. Mostly, the characteristics of the market which are focused, affects the nature of the pricing and the competition. The most important aspect is that too much attention should not be paid on the market share of the current firms within the industry (Tutor2u, 2012).

Usually, the most important features of the market structure are:

Number of the firms

It also includes the scope and degree of the international competition.

Market share of the large firms

It can be measure through the concentration ratio.

The nature of the costs

It includes the possibility of the firms to develop economies of the scale and also the existence of the sunk costs. It affects the contestability of the market in the long run.

The extent to which the industry is integrated vertically

The process through which different stages in the distribution and production of the product are controlled by the single project or are under the ownership of the single project is known as vertical integration.

The level of product differentiation

The level of product differentiation affects the price elasticity of the demand.

The arrangement of the buyers within the industry

It includes the risk of the monopsony power.

The turnover rate of the customers

It is also known as the market chum. It describes the number of the customers, which have changed its suppliers over the given period of time at which conditions of the market also change. The customer chum is always affected by the level of loyalty towards the brand and the consumer and also the influence of the market (Tutor2u, 2012).

Types of the market structures behave in terms of the Pricing, Supply, and Barriers to Entry, Efficiency and Competition. There are different characteristics of the market structures such as (BYU, 2009):

Number of firms

Degree of entry and exit of the firm

Product differentiation

Nature of the demand curve

Control over the supply

Control over pricing

Barriers to entry

There are four major types of market structure:

Pure competition

Monopoly

Oligopoly

Monopolistic competition

Discussion

Features of the four market structures

Type of market

Number of firms

Freedom of entry

Nature or type of product

Implications for demand curve faced by the firm

Pricing

Economic efficiency

Innovative behavior

substitutes

Pure competition

Many

Unrestricted

Homogeneous

Horizontal

Price taker

High

weak

Perfect substitutes available

Monopolistic competition

Many

Unrestricted

Differentiated

Downward ...