Learning Aim D, P3:
Explore how the market structure and influences on supply and
demand affect the pricing and output decisions for a given
business
What is market structure?
Market structure focuses on the market factors and qualities, generally organizational or
competitive that characterize the sort of challenge a business may have through competition in
their marketplace as well as the pricing policies used in their market. Therefore, market
structure can be described as the number of businesses in a market producing similar products
and services, and whose structure is dictated by the level of competition in that market.
Furthermore, market structure displays how enterprises are distinguished and classified
depending on the sorts of goods they produce, as well as how their operations are influenced
by external factors such as political, economic, social, technological, legal, and environmental
factors. The number of firms, the largest market share within an industry, the pricing structure,
and so on are all important organisational features. Market structure gives better
understanding of the features of distinct marketplaces. Market structure is classified into two
types: perfect compaction and imperfect compaction.
Perfect competition
Is when a market has many competitors in the industry selling similar products and services, the
market is currently thriving due to new businesses emerging in the marketplace as well as
already having many business in this industry, this would mean that there is an increase in
consumer demand and a wide range of consumer choice of selection of a particular product
within the market, this is advantageous for consumers as they can look through variety of
business goods by determining which product offers better quality over other business goods
within the marketplace as well as through judging the price for value in relationship to which
product provides better quality within the market. With perfect competition, there is also
intense competition since there are multiple firms in the marketplace providing identical
products, as well as there are a significantly large number of customers in the marketplace.
Additionally, businesses can freely enter and exit the market. This is due to the fact that there
are no barriers to entry into or out of the market, which encourages more enterprises to enter
the market due to the low cost of operation as well as the reason stated. Furthermore, in
,perfect competition, market share has no effect on pricing since market participants cannot
control market prices. Also, every market participant and potential market participant has free
and complete knowledge on past, current, and future conditions, preferences, and technology.
Additionally in perfect competition all transactions can be completed at zero cost.
Imperfect competition
In this market structure there are only a few competitors, therefore implies that firms dominate
the market their in. This means that customers have little choice of selection of goods or
services within the marketplace, hence firms in these markets can receive abnormal profit
margins and sales revenue. Companies within imperfect competition sell differentiated
products and services, set their own individual prices, fight for greater market share, and are
often protected by barriers to entry and exit the market their in. Imperfect competition does
not follow one or both of the conditions of perfect competition. In practice, all real-world
markets follow this approach. Businesses participating in this sort of competition may readily
affect the market price of a product or service and create real high potential profits. There are
several types of imperfect competition in which a business can operate, such as monopoly,
duopoly, oligopoly, monopsony, oligopoly, and monopolistic competition. Monopoly can occur
in Imperfect competition, this is where only one seller exists within the market. Duopoly
competition occurs when two sellers control the whole market. Oligopoly competition occurs
when there are a few sellers who either cooperate or compete. Monopsony competition occurs
when there are several sellers but just each buyer. Oligopoly competition occurs when there
are a large number of sellers and a small number of buyers. Monopolistic competition occurs
when a large number of sellers provide distinctive and unique products.
Features of perfect competition
, There are several features of perfect completion that distinguish it from imperfect competition.
A product is manufactured and sold by a huge number of companies in this market. Because
there are a vast number of firms, each firm supplies just a small portion of the overall supply in
the market, and hence no single firm has market dominance. It indicates that no business can
influence the product's price; rather, each must accept the price established by market forces
of demand and supply. The companies are price takers rather than price makers. In a totally
competitive market, there are no constraints on new businesses entering the market or current
firms exiting the market. In a perfectly competitive market, all firms manufacture and supply
the identical products. It means that all of the businesses' products are perfect substitutes for
one another. As a result, a firm's product's price elasticity of demand is limitless.
This graph depicts an
overview of the features
of perfect competition.
Features of imperfect competition
There are a number of sellers in imperfect marketplaces, but they are not significantly
comparable to one another and each firm differs in its own unique way through different form
factors such as via distinguished goods and services. There is a high potential barrier to entry,
but if the firm can endure and survive for a couple of years, there may be an opportunity for
them to start making some larger profitability and success. There are many types of substitute
products in this market, so the same product that a business may sell is also available in many
other places, giving consumers a wide range of options. This increases competition and
encourages businesses to innovate their products to differentiate themselves from competitors.
There are many types of substitute products in this market, so the same product that a business
may sell is also available in many other places, giving consumers a wide range of options. This
increases competition and encourages businesses to innovate their products to differentiate
