MARKET STRUCTURE

The focus of this post today is regarding the market structure. There are four types of market structure which are pure competition, perfectly monopolistic market, monopolistic competition and also oligopoly.

Let first discuss about the perfect or pure competition. Perfect competition is rare in the real world, but the model is important because it helps analyze industries with characteristics similar to pure competition. Examples of perfect competition are stock market and agricultural industries. There are many characteristics of this type of market structure. The first one is there are having many sellers in this competition. But since they are having enough buyers in this competition, a single seller’s decision has no impact on market price. The products also can be categorized as homogenous or standardized products which mean that each seller’s product is identical to its competitors. The sellers in perfect competition also known as the price takers as individual firms must accept the market price and can exert no influence on the price. Lastly is this type of market structure also offered free entry and exit concept where there is no significant barriers that could prevent firms from entering or leaving the industry.

Next is the perfectly monopolistic market or pure monopoly. Perfectly monopolistic exists when a single firm is the sole producer of a product for which there are no close substitutes. For the examples is Telekom Nasional Berhad (TNB) or Kereta api Tanah Melayu Berhad (KTMB). The characteristic of perfectly monopolistic is, the first one, the perfectly monopolistic structure is conquered by one organization or can be said as single seller where the firm and industry are synonymous. The product also can be categorized as a unique product as there are no close substitutes for the firm’s product. For example is ASTRO , there are no other companies that offered the same service in Malaysia. Next, the firm is the price maker as they are free to fix the price. Lastly, to enter or exit the market, it is very strict or could be said that the entry or exit is blocked. This is due to the high requirements and the large investment needed.

The third market structure is the monopolistic competition. Monopolistic competition is refers to a market situation with a relatively large number of sellers offering similar but not identical products. For example is the fast food restaurant such as KFC or Pizza Hut or clothing stores likes Padini Concept Store or Nike. The first characteristics of this type of market structure is there are many sellers in the market but not as many as perfect competition and each of the firm has a small percentage of the total market. In the term of product, it could be said that this market structure is having a differentiated products where there are variety of the product which makes this model different from perfect competition market structure. The product can be differentiated in style, brand name, location, advertisements, packaging, etc. It is also easy to enter or exit the market but not as easy as perfect competition.

The last one is the oligopoly structure. Oligopoly exists where there are few large firms producing a homogenous or differentiated product dominate a market. The examples are automobile company like Proton or gasoline industries such as Petronas or BHP. For oligopoly, there are having only a few large firms where each must consider its rivals’ reactions in respond to its decisions about prices, output and advertising. In this market structure, they are producing standardized or differentiated products. For the price, it is determine by two ways where the first one is based on price leader. The price leader is the company who dominate the market and the price stated will be follow by the others firms. The second way is based on cartel. Cartel is a non-profit organization or associations. The entry into this market also hard as it needs a huge capital investments which could be said as the main barrier to enter this market.