A market is a unique phenomenon comprising of several features and characteristics based on its differentiation. It is essential to understand these markets to have a better glimpse of the economy. Markets may be unpredictable, volatile, and sometimes much more than your analysis. Hence read and understand these types of markets before you dig in further into the economy.
Infinite Buyers and Sellers
A market which consists of many small firms competing against each other may be known as perfect competition. It may be hard to find such markets in this day and time, but that does not mean they don’t exist. These firms do not have power over another as they do not possess the capability of controlling the prices. An excellent example of this kind of market is our very own stock market, a large number of groups which do not have the power to control the prices. Hence that sums up the perfect competition.
Any economic grad can sit you down and explain what a monopolistic competition is. A market where a vast number of firms compete against each other with the only difference being, they sell slightly different products. This technology provides them with the power to control the prices depending upon their product and its quality. At a market like this, consumers are the deciding factor as they are left with a list of choices. This market is similar to the automobile industry, as the industry manufactures a considerable number of cars with various features belonging to different companies, but at the end of the day, they are all cars and are used for transportation.
This market refers to a true king. A market where a single firm rules them all or a market where an individual controls the entire market is known as monopolistic competition. At this stage, the consumers are forced to come to the single manufacturer present, and hence, the firm has the upper hand. So these firms increase their prices without causing any changes to their level of output. An easy way to understand this kind of market is when you assume that only a single restaurant operates in your street and is the only one available in a 10km radius. Hence you are typically forced to go to these restaurants to satisfy your needs, giving the restaurant an advantage.
Oligopoly talks about a market structure which is controlled by a small number of firms facing limited competition. History has taught us that these firms either compete or collaborate to earn better profits. For example, consider the cable television services. It is a market which consists of very few players who operate within a particular area and does not cross each others paths.