Market Structure – Example
Market structure can be said to be the classification or composition of the different types of market as described from their unique characteristics of how they choose to allocate prices of commodity in the market. The different types of market structure can be grouped majorly into two main categories the perfect and the imperfect market. Under the perfect market structure we have the perfect competitive market. Under the imperfect market we have the monopoly, oligopoly, monopolistic competition and other special categories based on the number of buyers. There are different examples of the different types of market structure based on the special characteristics’ possessed by each type of market structure.
An example of monopoly market structure is when there is one supplier firm in the market that dictates the prices of a specific commodity. The firms in the market will sell highly differentiable products. Examples are two types of firm in the market that all sell ladies oil. Firm A sell ladies oil for skin care and the other firm b sells ladies oil that is used for hair coloring. The two products might seem to be the same but there is a great differentiation according to their use. The two products are therefore not close substitute and the firm that sell this oil are said not to be in competition. There are vey high levels of barrier to entry under the monopoly type of market. The two types of firm A and B will do anything to keep other firms from entering in the ladies oil supply market.
The other example of market structure as defined by its characteristics is the perfect competition. The firms that operate in this market are very many and will sell closely related products. The consumers will be able to differentiate the different products and their supplier hence it is hard to overcharge consumers. An example is two shops that sell fast food in any town. Their number in any big city is large enough to fit the characteristics of a perfect competitive market. If we assume the fast food shops sell beverages like tea and coffee then the products will be the same or homogenous in all the fast food shops. Therefore when one fast food shop increases its tea or coffee prices it will lose its customers to the other fast food shop. The fast food shops will therefore increase their profit by increasing their sales. If the fast food shops want to increase its sales it will have to lower the prices of that commodity in the market.
The other example of imperfect competition is the monopolistic competition. Under this type of market structure there are many sellers and buyers but they sell differentiated products. Hence there is no competition between the firms in this market. An example in this market is the firms selling the different types of soft drinks. They are very many in the industry but since each has its own brand and the consumers can differentiate among the many beverage drinks there is no competition. The consumer is aware of what they want.