Distinction between the four Forms of Market(Perfect Competition, Monopoly, Monopolistic Competition and Oligopoly)
The number and types of firms operating in an industry and the nature and degree of competition in the market for the goods and services is known as Market Structure. To study and analyze the nature of different forms of market and issues faced by them while buying and selling goods and services, economists have classified the market in different ways. The different forms of market structure are Perfect Competition and Imperfect Competition (Monopoly, Monopolistic Competition, and Oligopoly).
A market situation where a large number of buyers and sellers deal in a homogeneous product at a fixed price set by the market is known as Perfect Competition. Homogeneous goods are goods of similar shape, size, quality, etc. In other words, in a perfectly competitive market, the sellers sell homogeneous products at a fixed price determined by the industry and not by a single firm. In the real world, the situation of perfect competition does not exist; however, the closest example of a perfect competition market is agricultural goods sold by farmers. Goods like wheat, sugarcane, etc., are homogeneous in nature and their price is influenced by the market.
Monopoly is a completely opposite form of market and is derived from two Greek words, Monos (meaning single) and Polus (Meaning seller). A market situation where there is only one seller in the market selling a product with no close substitutes is known as Monopoly. For example, Indian Railways. In a monopoly market, there are various restrictions on the entry of new firms and exit of existing firms. Also, there are chances of Price Discrimination in a Monopoly market.
A Monopolistic Competition Market consists of the features of both Perfect Competition and a Monopoly Market. A market situation in which there is a large number of firms selling closely related products that can be differentiated is known as Monopolistic Competition. The products of monopolistic competition include toothpaste, shampoo, soap, etc. For example, the market for soap enjoys full competition from different brands and has freedom of entry showing the features of a perfect competition market. However, every soap has its own different features, which allows the firms to charge a different price for them. It shows the features of a Monopoly Market.
The term oligopoly is derived from ‘oligi’, meaning few and ‘polein’, meaning to sell. A market situation where the number of big sellers of a commodity is less and the number of buyers is more is known as Oligopoly Market. The sellers in the oligopoly market sell differentiated or homogeneous products. As the number of sellers in this market is less, the price and output decision of one seller impacts the price and output decision of other sellers in the market. In other words, the interdependence among the sellers of a commodity is high. For example, luxury car producers like BMW, Audi, Ford, etc., come under Oligopoly Market, as the number of sellers of luxury cars is less and its buyers are more. Sometimes, there are few sellers in the oligopoly market, and every seller gets influenced by other sellers and influences them too, which is also known as ‘competition among the few’.
Difference between Perfect Competition, Monopoly, Monopolistic Competition, and Oligopoly
|It is a market situation where a large number of buyers and sellers deal in a homogeneous product at a fixed price set by the market.||It is a market situation where there is only one seller in the market selling a product with no close substitutes.||It is a market situation in which there is a large number of firms selling closely related products that can be differentiated.||It is a market situation where the number of big sellers of a commodity is less and the number of buyers is more.|
Number of Sellers
|This market has very large number of sellers.||This market has a single seller.||This market has a large number of sellers.||This market has big sellers.|
Number of Product
|This market has homogeneous products.||There are no close substitutes in this market.||This market has closely related but differentiated products.||This market has homogeneous or differentiated products.|
Entry and Exit of Firms
|There is freedom of entry and exit in this market.||There is a restriction on the entry of new firms and exit of old firms.||There is freedom of entry and exit in this market.||There is a barrier on the entry of new firms into the market.|
|This market has a perfectly elastic demand curve.||This market is less elastic and has a downward-sloping demand curve.||This market is more elastic but has a downward-sloping demand curve.||The demand curve of an oligopoly market is uncertain as one cannot determine the exact behaviour pattern of a producer.|
|As each of the firms in this market is a price-taker, the price is uniform.||As the firms in this market are price-maker, there is a possibility of price discrimination.||The firms have partial control over the price because of product differentiation.||There is price rigidity in this market as the firms can influence it.|
|In this market, no selling costs are incurred.||In this market, only informative selling costs are incurred.||In this market, high selling costs are spent.||In this market, huge selling cost is spent as it relies more on non-price competition.|
Level of Knowledge
|Perfect Knowledge||Imperfect Knowledge||Imperfect Knowledge||Perfect Knowledge|
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