Forms of Market

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Market is introduced as a structure which is for the societal benefit of the society. Market structure consists of various forms of market, the forms are characterized according to the nature and the degree of competition which exists in the market for the goods and services. The structure of the market both for the goods market and the service or the factor market is to be judged by the nature of competition which is prevailing in a particular type of market.

The Market form is a state that is resultant for the quality or the effectiveness of market competition that is prevailing in the market.  There are seven main market forms:

  • Perfect Competition

  • Monopolistic Competition

  • Monopoly

  • Monopsony

  • Natural monopoly

  • Oligopoly

  • Oligopsony.

What is the Meaning of Market?

A market can be defined as a place where two parties are able to gather, which will facilitate the exchange of goods and services. The parties that are involved are usually the buyers and sellers. A market is a physical form like a retail outlet, where the sellers and buyers can meet face-to-face, or in a virtual form like an online market, where there is an absence of direct physical contact between the buyers and sellers.

‘Market’ is a term used in many instances like the securities market or the normal physical market where the people come together for the procedure of buying and selling.  

Forms of Market in Economics

The variety of market structures characterizes an economy. These market structures essentially refer to the degree of competition in a market.

The other determinants of market structures include the nature of the goods and product, the number of sellers, number of consumers, the nature of the product or the services, economies of scale etc. Let us discuss the basic types of market structures in any economy.

1. Perfect Competition:

In a perfect competition type of market structure, there is a large number of buyers and sellers, where each of them is competing against each other. There is no big or influential seller in the market. Hence the sellers in this market are known as price takers.

2. Monopolistic Competition:

This competition is a realistic scenario. In monopolistic competition, there are a large number of buyers as well as sellers. But the difference is that they all do not sell homogeneous products. The products are similar but all sellers sell differentiated products. The sellers here can charge a marginally higher price as they enjoy a dominant position in this form of market structure. 

3. Oligopoly:

In an oligopoly structure, there are few firms existing in the market. In this type of market structure, the buyers are far greater than the sellers. The firms in the case of Oligopoly, either compete with another or collaborate. They use their market influence to set the prices and in then maximise their profits. So, here the consumers become the price takers. In an oligopoly, there are various barriers to entry in the market, and new firms find it difficult to establish their foothold in this type of market structure.

4. Monopoly:

In a monopoly type of market structure, there is a single seller, here this single seller meaning the single firm will control the entire market structure. It can set any determined price of its own wishes since it has all the market power under his dominance. The consumers do not have any alternative than paying the price set by the seller.

Monopolies are the most undesirable form of market structure. Here the consumer loses all their power and thus the market forces become irrelevant. However, a pure monopoly is rather rare in reality.

FAQ (Frequently Asked Questions)

1. What is the Degree of Competition?

Ans. Competition Degree means the power or the influence that a firm creates over the market which eventually affects the whole structure and thus the system works according to the competition. 

The Four Competition Degrees are: 

  • Perfect competition, which primarily means that there are a large number of sellers in the market who competes for customers. 

  • Monopolistic competition, in this type of competition, there are many sellers, who produce quite similar products, but the customers see their products as differently, which created the competition. 

  • The third is Oligopoly, where few firms compete or collab against or with each other

  • The fourth is the Monopoly, which means a single seller. 

2. What Type of Structure is ‘Oligopsony’?

Ans. An oligopsony is a type of market in which there are fewer buyers but many suppliers. This makes the Oligopsony a buyer's market. In an oligopsony, the few buyers are very large and powerful. In an oligopoly, the suppliers control the market and eventually controls the prices fluctuating in this market.

Oligopoly arises when a small number of large firms have all the general sales in an industry. Examples of oligopoly include the auto industry, television industry, and commercial air travel. 

3. What Do You Mean by ‘Economies of Scale’?

Ans. Economies of scale are the cost advantages that are reaped by the companies who use this technique of economies of scale. When production becomes efficient, the companies can achieve these economies of scale by increasing the production and lowering the product’s costs. This particularly happens because costs are spread over a larger number of goods. Economies of scale can be both internal and also external.