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Running head: MARKET STRUCTURES
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Market structures refer to the factors that influence the competition and prices of goods
and services in the market (Etro, 2014). There are different types of market structures. We define
a market structure according to the number of businesses, the percentage of market share of the
largest firms in the market, the nature of costs, the level of vertical integration of the enterprise,
product differentiation, demography of the market and customers’ turnover. When considering
the number of firms, it is important to include the scale of the companies and the degree of
foreign competition. Vertical integration of an industry determines how a single organization can
control the production and distribution of a product in the market.
Perfect competition is a market in which all companies sell identical products and
services, and neither of the companies can independently determine the price of the goods and
services (Etro, 2014). For a market to be in perfect competition, it must meet the following
1. All businesses in the market must be selling the same products and
2. None of the firms have the ability to set prices
3. All the companies must only command a small market share
4. The clients of the firms must be aware of the products and services and
the prices that other businesses charge for the same.
5. Entrance and withdrawal from the market are free.
Perfect competition markets are mostly theoretical. They are necessary for the academic
purpose of comparing other real word markets such as monopolies. However, agricultural
markets are almost perfectly competitive. In an agricultural market, there are numerous sellers of
agricultural products. The buyers of these products are aware of the prices in the entire market.
None of the sellers can set the prices of the products independently. If they do so, they are likely
to close shop. The agricultural markets do not require significant entry capital. Sellers can
therefore freely enter or exit the market. Agricultural markets meet all the five requirements of
the perfect competition market.
Monopolistic competition is a type of market where multiple sellers in the market sell
similar but differentiated products (Etro, 2014). The sellers achieve differentiation through
branding and different qualities. Their differentiated products are not perfect substitutes. The
vendors have the same barriers to entry into and exit out of the market. They collectively share
the responsibility of setting market prices. A business' decision does not have significant
consequences on its competitors. A prominent characteristic of firms in this market is heavy
advertising. In other words, a monopolistic market is a midpoint between monopoly and perfect
competition markets. Restaurants give a good example of a real-life monopolistic competition.
The restaurants offer the same service, but each of the restaurants delivers the service uniquely.
The quality of serv...
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