How would you explain the differences among the 4 types of m

How would you explain the differences among the 4 types of market structures? Identify which market structure your organization competes in and why you think so.

Solution

There are broadly four type of markets. They are perfect competition, monopoly, monopolistic competition.

Perfectly competitive market is a situation where ther are innumerable buyers and sellers. Here producers and consumers\' are price taker and elasticity is infinite. It is assumed that there is full knowledge to both agents, entry and barrier is free in the long run. In the short run firm can earn supernormal,normal profit and even face loss. Firms will not shut down unless price becomes lowered than average minimum variable cost. Equilibrium condition is price=marginal cost. In the long run firms will earn zero profit only and equilibrium is when price=average cost.

Monopoly is that situation where there is only one seller and many buyers, seller is selling that product only which has no close substitute. Equilibrium condition is MR=MC. Corresponding to that we get equilibrium price and quantity. Here firm have no supply curve, produces at elastic zone and can do price discrimination and even be multiplant. Here we face a dead weight loss.

Monopolistic competition is a special case of intermediate between perfect competition and monopoly. Here number of sellers are 2-20. Sellers sell close substitute and to promote self product there is branding, selling, packaging cost unlike the former cases. In this case there exists an excess capacity for production.

Oligopoly is a special type of market where sellers sell different products or close substitute. It has two part-non collusive and collusive. In the former case for an industry we may say that industry\'s equilibrium is at sub-optimal point. In latter case it can be cartel, price leadership type. In case of former it has several model-Cournot\'s duopoly, Bertrand\'s model, Stackleberg\'s model, Sweezy\'s model.

Perfect competition is the best that ensures competition as divergence from it generat dead weight loss. From the first welfare theorem it ensures perfect competitive set up is the best.