Answer to Question #183504 in Economics for aliah

Question

Analyze the characteristics of each market structure and identify firms (local / foreign) under each category.

Answer 1

Market structure - the main characteristics of a market, which include the number and size of firms, the nature of the products, the ease of entering and exiting a particular market, the availability of information, and the degree of control or power over price.

In some markets (for example, grain), competition takes the form of rivalry between many small producers selling essentially identical products, where entry and exit are unrestricted. In other markets (for example, cars or computers), competition occurs between several large manufacturing firms with a significant market share.

Manufacturing firms can offer both uniform and varied (differentiated product) products.

The uniformity of products is understood as a situation in which different firms produce similar (identical) products.

Ease of entry refers to the fact that firms that are just starting to manufacture products can do so on an equal footing with existing firms in terms of the prices they have to pay for certain types of resources; access to government licenses, etc.

Ease of exit means that firms do not face any difficulties, legal barriers, leaving the market.

Barriers to entry are legal or natural barriers to entry for new firms.

Equal access to information means that all buyers and sellers have complete information about the prices of goods and about the prices of all types of resources required for their production. In addition, buyers know everything they need to know about the product's characteristics, and all manufacturers have equal information about the manufacturing technology.

Based on the defining characteristics that characterize the market structure, economists distinguish 4 types of market structures (market models):

1. Perfect (clean) competition;

2. Monopolistic competition;

3. Oligopoly;

4. Pure monopoly.

Characteristic features of the four types of market structures.

Type of market structure Number and size of firms Product type Entry and exit conditions Information availability Price control

Perfect competition Many small firms Homogeneous (standard) products Very lightweight, no obstacles Equal access to all types of information is absent

Monopolistic competition Many small firms Dissimilar (differentiated product) Relatively light Some constraints Some, within fairly narrow limits

Oligopoly The number of firms is small, there are large firms Standardized or differentiated Significant obstacles present Some constraints Limited by interdependence; conspiracy

Pure monopoly One firm Unique, no close substitutes Nearly insurmountable barriers to entry

In conditions of perfect competition, there are a very large number of firms producing a standardized product. New firms can easily enter the industry (examples are the production of grain, corn, and other agricultural products).

At the other extreme, there is a pure monopoly, which means a market where one firm is the only seller of a product that has no close substitutes (for example, a local electric company).

The third market structure, called thфe oligopoly, is the market of several firms, with at least some of them controlling a significant share of the market. Moreover, each firm is influenced by the decisions made by its competitors and must take these decisions into account in its behavior in the field of pricing and determining the volume of production.

Products can be standardized (such as steel and aluminum) or differentiated (such as cars). It is quite difficult for new firms to enter the oligopolistic industry.

Another type of market structure - monopolistic competition - is characterized by a relatively large number of sellers who produce differentiated products (clothes, shoes, perfumes, etc.).