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Posted on July 27th, 2012, by

Perfect Competition Monopoly Monopolistic Competition Oligopoly
Example of an organization Small organizations functioning in a highly competitive market Large organizations dominating in an industry Large organizations, neither has a dominant position in the market Few large organizations
Goods or services produced by an organization Homogeneous goods and services offered to customers. High quality of goods or services Goods and services are produced to suffice the demand and maintain high profits of the organization. The quality is uncertain Goods or services of a high quality; heterogeneous products and services Goods and services are similar in quality
Barriers to entry Low Extremely high Few barriers to entry High barriers for small organizations; low for oligopolists (large organizations present on the market)
Numbers of organizations Large number of small organizations One A few large organizations which have a considerable, but not totally monopolistic share of the market Few
Price elasticity of demand Price established at a certain level with insignificant variations Price is established by the monopolist, may vary from predatory pricing to extremely high price Non-price differences among products or services; producers have a degree of control over price Price policies are intertwined between all the organizations present in the industry
Economic profits Relatively low Maximum High High

The existence of different market structures defines, to a significant extent, the development of markets, industries, competition between companies operating within industries and company-customer relationships. In this respect, it is important to underline that practically all market structures have their own strengths and weaknesses. On the other hand, it is worth mentioning the fact that, as a rule, market structures are vulnerable to considerable changes and there is a possibility for transition from one market structure to another.

On analyzing the four market structures, it should be said that the perfect competition is probably the ideal market structure in which the relationship of companies and customers are balanced. This market structure implies that buyers are ready to buy products at certain price, while companies are ready to sell products at certain price.

Basically, the demand and supply leads to the formation of a price that meets interests of both buyers and sellers. In such a way, the market equilibrium is reached. At the same time, the perfect competition implies the high level of competition between small companies which operate in the industry. These companies produce goods and products of the similar quality that allows them to maintain a competitive position.

In contrast, monopoly is characterized by the lack of competition since the industry is totally dominated by one company which produces goods or services other companies cannot produce or they cannot overcome high entering barriers to compete with the monopolist. In this regard, consumers are in a disadvantageous position because they do not have a choice of products and services. The monopolistic competition, instead, implies certain choice though a few monopolists having a large share of the market tend to secure it from penetration of smaller competitors.

Finally, oligopoly, is close to the monopolistic competition since there are a few companies which, though, coordinate their actions, including pricing. For instance, an oligopolist change price along with other oligopolist and they coordinate their policies and actions in the industry. In such a way, they tend to maximize their profits.

In fact, all organizations in all market structures tend to maximization of their profits, but the higher the competition is the lower profits of organizations are, while the lack of competition leads to the maximization of profits, which are consolidated in hand of either one or few organizations.

 

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