Fundamentals of Business

Market structures

The major market forms are:

Perfect competition
Theoretical free market situation where
(1) buyers and sellers are too numerous and too small to have any degree of individual control over prices,
(2) all buyers and sellers seek to maximize their profit (income),
(3) buyers and seller can freely enter or leave the market,
(4) all buyers and sellers have access to
information regarding availability, prices, and quality of goods being traded, and (5) all goods of a particular nature are homogeneous, hence substitutable for one another. Also called perfect market or pure competition.
Examples of perfect competition
Market stalls, Kebab Shops

Monopolistic competition
Market situation midway between the extremes of perfect competition and monopoly, and displaying features of the both. In such situations firms are free to enter a highly competitive market where several competitors offer products that are close (but not perfect) substitutes and, therefore, prices are at the level of average costs (a feature of perfect competition).. Many markets can be considered as monopolistically competitive, often including the markets for restaurants, clothing, shoes and service industries in large cities.

Monopolistically competitive markets have the following characteristics:

. There are many producers and many consumers in a given market.
. Consumers have clearly defined preferences and sellers attempt to differentiate their products from those of their competitors; the goods and services are heterogeneous heterogeneous, usually (though not always) intrinsically so.
. There are few barriers to entry and exit.
. Have a degree of control over price.