Businesses are being developed daily due to the large expanding markets and new ideas that people are able to come up with on a daily basis. There are also businesses that are failing daily due to a lack of market or too much competition leading to reduced profits. The ability of a business to succeed is always determined by the type of market structure within which it operates and the quality of competition it faces. The intensity of competition from other firms is also determined by the market structure in which these businesses operate.
There exist various kinds of market structures that are determined by factors such as the number of sellers, the number of buyers, or even the type of product that is being supplied in the market. These market structures have some differences that either helps a business prosper or just bring new businesses down.
Some of these structures include:
Monopoly.
This is a market structure in which there is only a single business supplying all of demand in the market. Entry into this market is difficult because of the various barriers that are in place because of the nature of the market. The barriers may be economical in which venturing into the business might cost too much, or political in which the government makes the business a monopoly and prevents the entry of any other businesses. It may also be as a result of a copyright or a patent acquired by the business preventing others from joining the business hence the market will always remain a monopoly.
Oligopoly.
In this market structure, there are a few businesses that control the market. Like in monopoly, joining this market is really tough and the businesses control the market and the prices of the products in the market. The products produced by the companies are almost identical and they are forced to share the market because of the demand forces. Their prices are independent but the price of one business most likely influences the other because of an attempt to get demand too.
Perfect competition.
This is the market structure that would probably allow for the introduction of various more businesses. It features numerous products that are similar hence providing a wide range of substitutes for a product. It also has many sellers and many businesses and an elastic demand curve, since the businesses are just price takers and can’t set their own prices. The prices of the products in this market are governed by the supply and demand available at a time. At any single time, all the businesses have a perfect knowledge of the market.
Monopolistic competition.
This is the market structure that combines the features of a monopoly and a competitive market. The entry into the market has very little barriers, but the businesses sell products that are different from each other hence none can come as a substitute for the other. In this market structure, all the businesses make a normal profit in the long run but end up with super normal ones in the short run.
With the perfect knowledge of the market structure that one is looking to venture into, you can always be ready for the risks or even know a better market to get into. This is because the competition you face and how ready you are for it will determine how you prosper in your business.
Author of this article is Elizabeth Harvey, she is a writer and blogger. She uses a neural network for stock prediction for her work.
