Types and structure of competitive markets

What does competitive market mean ? How does competitive market result in monopoly and oligopoly ? What are the characteristics of competitive market ? These are vital questions that help a learner to understand the types and structure of competitive markets…

Nowadays, the nature and structure of market competition is truly cyclic. It moves from monopoly, oligopoly, competitive, and perfectly competitive market.

Monopoly = Oligopoly = Competitive market = Perfectly competitive market.

This sequence of market structure changes as per the change in determinant of market.

The major responsible factors for competitive markets are —

  1. Tarrifs and barriers
  2. Factors of production
  3. Natural resources
  4. Comparative advantage
  5. Government incentives
  6. Regulatory framework

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.

Now, let’s understand the structure and types of competitive markets in more detailed manner.

Simple meaning of competitive market

It is a type of market in which everyone enjoys equal level playing field. And, no one controls the prices of commodities but the forces of demand and supply.

In simple terms, it is a market where everyone is price taker, and there hardly possibility of monopoly.

Example of competitive market = Vegetable and food grain markets in the developing countries.

Necessary conditions for competitive market

First, there should be a level playing field for everyone. 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.

Finally, in case of, alternative or substitute, the price of the product may affect. Hence, there should not be any effective substitute as well.

What is Oligopoly market competition

For simple understanding, it is a market with…

More than two sellers + more than two buyers – substitute = oligopoly market competition.

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.

Technically, 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.

Meaning of Monopoly market competition

Monopoly market results when there is —

Single seller + many buyers + no substitute = Monopoly Market.

Monopoly market may also result when a government assigns a responsibility on a firm to produce a certain goods for society as a whole as a part of incentives.

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 major types and structure of competitive markets. Hope, you will enjoy this.

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