The nature of market competition and structure is cyclic in nature. Its changes are determined by the factors, including barriers, resources, and comparative advantage. When a single firm enjoys all the conditions in the absence of others, then it is called monopoly. On the other hand, in case of more than one competing firms, we call it oligopoly market competition. This blog, “market competition” is a better resources to bring more clarity, regarding market nature in the rapidly globalizing world.
For the layman’s understanding, a truly competitive market is a type of market structure where buyers and sellers have equal level playing field for same product with same price in absence of substitute.
To qualify a perfect competitive market, it has to fulfill following four important conditions.
First, there should be a level playing field for everyone. It means those firms which are part of production of the targeted product, should receive same treatment by government. Also, they should have equal rights regarding use of resources.
Second, the numbers of buyers and sellers of the same products should be large enough. Otherwise, it may be termed as oligopoly market.
Third, both buyers and sellers should be price taker. In clarity, the market forces should decide the price of targeted product, instead buyers or sellers. In such market, price will fluctuate as per the degree of demand and supply
Finally, in case of, alternative or substitute, the price of the product may affect. Hence, there should not be any effective substitute as well.
Vegetable vendors market in the developing countries is the best example of competitive market where large number of buyers and sellers sell and buy same commodities for same price.
Oligopoly market competition
It is a type of market competition in which more than few firms are sellers but many buyers. Here also product, as well as price is same.
Unlike competitive market, in this market, sellers are closely interdependent. It implies that the impact of price action of one firm is bound to affect others. In this situation, two factors are important-Low cost production and market base.
Low cost production is only possible with the help of scientific inventions and lower cost of factors of production.
For a player, entry and exist barriers are so high compare to other markets. To ensure more effective production, firms form joint venture or opt for mergers.
Second, consumers behaviour is also subject to change according to the available incentives. It means, more the incentive, greater the base and larger the impact on rivals.
For example, mobile market, Telecom industry in India are the better examples of oligopoly market competition.
Monopoly market competition
Usually, monopoly market arises out of three conditions. In such market, there is only one seller but many buyers. First, when a single firm is capable to produce a goods with low cost compare to rivals, the rivals exist the market of that product, instead to face losses.
In the other conditions, it happens when a government assigns a responsibility on a firm to produce a certain goods for society as a whole as a part of incentives. Or, a firm have a greater technological advantage over other.
In both cases, the respective firm enjoys greater monopoly as long as the will of government and relevancy of product is there with that actor.
These are the three forms of market structures-competitive, monopoly, and oligopoly. In the competitive market, both are price taker but the forces determine the price of the same product.
In the monopoly market, single player is the seller for many buyers. But, it depends on the certain factors to be a monopoly firm.
In the last, oligopoly arises when there are few sellers for many buyers. After analysis of these forms, we can say that it is never-ending cycle of market competition.