Market structure is defined by economists as the characteristics of the market. It can be organizational characteristics or competitive characteristics or any other features that can best describe a goods and services market. The major characteristics that economist have focused on in describing the market structures are the nature of competition and the mode of pricing in that market. Market structures can also be described as the number of firms in the market that produce identical goods and services. The market structure has great influence on the behavior of individuals firms in the market. The market structure will affect how firm price their product in the industry .For example in a competitive market the firms are price takers while the industry has the sole duty of price setting. The market structure will affect the supply of different commodity in the market. When the competition is high there is a high supply of commodity as different companies tries to dominate the markets. A market structure will affect the barrier to entry for the companies that intend to join that market. A monopoly markets structure has the biggest level of barriers to entry while the perfectly competitive market has zero percent level of barriers to entry. The other factors that influence the firm behavior under a market structure are the efficiency. Firm will be more efficient in a competitive market while firms will be least efficient in a monopoly structure. The level of competition in firms will be influenced by the market structure. A competitive market structure and a monopoly will have different levels of competition.
Features of market structure
- The number of firm operating in a market; It will cover both the local and foreign markets.
- The concentration ratio of company; this will show the market share held by the large companies.
- The amount and nature of costs in the market; It will show how the different costs affect the contestability in the market. It will include the economies of scale and the presence of sunk costs.
- The degree of vertical integration; Vertical integration is the process of combining the different stages of production and distribution to be managed by a single enterprise.
- The levels of product differentiation
- The market churn or the customer’s turnover; this will give the number of consumer that are willing to change their consumers over a specific period of time when there are market changes. The market rate of market churn is an indicator of the level of brand loyalty and influence of marketing and advertising on customer’s choice.
The different types of market structure are; the monopolistic competition also referred to as the competitive market. The oligopoly market (called a duopoly when only two firms exist in the market), a monopsony (there exist only one buyer), the monopoly structure and the perfect competitive market. The types of market structures can be grouped into the perfectly competitive structure and the imperfectly competitive market structure. The imperfectly competitive market structures are the oligopoly, duopoly, monopoly and the monopolistic competition.