Understanding market structures

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Commonly used in economics to describe the interconnectedness of and interaction between the buyers and sellers in a market, at Flaxem, the term market structure as the impact of regulations, technology innovation, and behavior changes on the market and its participants.

Business models, methods of communication, security prices, and investment returns are all impacted by changes in market structure.

In order to access economic environments in business and help business leaders to judge policy and legislation, a concept of market structures was developed. Market structures see different market characteristics that determine relationships between buyers and sellers, sellers and sellers and buyers and buyers.

The four market structures there are, are determined by defining characteristics which include but not limited to:

  • Commodities being sold and the extent of production
  • The number of firms in the market
  • The difficulty of entry and exit in the market
  • The number of buyers
  • The distribution of the market share for large firms
  • Relationship between buyers and sellers.
    For example, in perfect competition, there is easy entry and exit in the market.

The market structures.

  • Pure or perfect competition: This is characterized by a large number of small firms competing with each other. As in the example, there is easy entry and exit of firms in this kind of structure. It is notable that supply(what is sold) and demand(what is sought to be bought) determines the goods produced. An example of this is agriculture and crafts.
  • Monopolistic competition: This is usually confused with the pure competition but is slightly different. This type of market structure is characterized by a large number of small firms(pure competition) BUT selling similar but highly differentiated goods. They use tools like branding and advertisement highly to sell their products. Examples here include fast-food restaurants.
  • Oligopoly: Few firms dominate the industry and there are difficulties in entry and exit. This is because most of the raw materials are controlled by these firms. I consider petrol stations part of this.
  • Monopoly: Here, one firm controls the industry and there is blocked entry into the industry because yeah… competing to reach their level is a real hustle. A good example here are the public utilities and the sports leagues.

If you are interested in finding out more about Business accounting and management software, call us on+254202305051(Kenya) or +256414665846 (Uganda) or email info@flaxem.com and one of our Business Software Consultants will be more than happy to have a chat with you regarding this.

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