MARKET STRUCTURE

Market structure

Market structure

Perfect Competition

Monopolistic Competition

Oligopoly

Monopoly

Perfect competition in a market consists of many small firms selling identical products and services. Because there are so many firms involved, it makes no difference to the buyer where he/she purchases from. Demand is perfectly elastic and the firm is price taker - since the companies individually produce a very small percentage of the total industry output, they have no influence on the market price. They can only accept the prevailing market price. There are no barriers for entry to the industry. Any firm can enter the market and the present sellers can't stop that firm from entering. Advertising is practically pointless in perfect competition - because the products are virtually indistinguishable from each other, the purpose of advertising is defeated. (Ferrell, 1998)

Monopolistic competition is a form of economic competition in which there are many producers and many consumers in a given market, consumers have clearly defined preferences, the goods and services are heterogeneous, and there is freedom of entry. It harbors some characteristics of monopoly as well as some of perfect competition (Ferrell, 1998). A monopoly is determined as a unrelenting market condition where there is only one provider of a kind of product or service. Monopolies are characterized by a lack of economic competition for the good or service that they provide and a lack of usable substitute goods. Ideal rivalry or competition is a model in economic theory . It describes a hypothetical market form in which no producer or consumer has the market power to influence prices in the market. This would lead to an outcome which is efficient, according to the standard definition in economics. The analysis of perfectly competitive markets provides the foundation of the theory of supply and demand as well.

An oligopoly is a prime example of imperfect competition. They are the most common type of market structure in Australia, and they involve a few (relatively) large firms with a (relatively) large market share. The firms involved sell similar products, and the barriers to entry into the market are quite high (this explains why there are only a small number of firms).

Advertising is a key part of an oligopoly. A successful advertising campaign gets the public eye, and attracts consumers to the firm in question over those who do not advertise (at least as successfully). The key advantage of an oligopoly is that the firms involved have high ...