Market Structure Essay

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Market structures Now, we will consider another aspect of marketing – market structures. We will start the topic this week and continue it next week. Definition This refers to market classification according to the number of firms in the industry, types of product, the existence or non-existence of barriers to entry and the level or degree of competition. There are four main market structures: * Perfect competition * Monopoly * Monopolistic competition * Oligopoly For each market structure the candidate should know the following: * Definition * Characteristics/features * Advantages * Disadvantages * Short-run and long-run profits ü Perfect competition Definition: Perfect competition refers to a market structure in which there are numerous firms in the industry each selling a homogeneous product. There are no real examples of perfect competition in real life. However, some markets approach near to perfection. These include agricultural markets, stock markets and markets for foreign exchange. Characteristics: Some of the key characteristics of perfect competition are: Numerous buyers and firms in the industry: This means that neither one firm nor one buyer can affect the price in the market. Each is a price-taker. The product being sold is homogeneous: This means that there are no differences in what each firm is selling, whether real or imagined. Thus, if a firm increases its price, its sales will fall to zero as the buyers will buy from the other sellers who have exactly the same product. Perfect knowledge of the market: Both buyers and sellers know exactly what is happening in the market. For example, if prices change they are immediately aware of it. Perfectly elastic demand curve: This indicates that the firms cannot control price, but can sell any amount at the ruling price. Firms are independent: This means that

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