Market types according to competition

Market types according to competition

1. 1. Perfect competition market

   • These are markets in which so many consumers, offers and brands interact that none of them is capable of influencing the price of the products on their own. Competition is always the order of the day and goods and services are generally the same or similar.
     • Companies are price-takers
       • Many companies compete in the market and therefore face a significant number of direct competitors. As each company sells a sufficiently small proportion of the total market production, its decisions do not influence the market price, therefore they are considered to be price-takers. This assumption applies to both consumers and businesses. So the assumption is made by saying that there are many independent companies and consumers in the market who believe that their decisions do not affect prices.
     • Product homogeneity
       • The products are identical or have very similar characteristics. In this case, the products are perfect substitutes, so no company can charge a higher price than others without losing business. This assumption is very important because it guarantees that there is a single price in the market, which is determined by supply and demand.
     • Freedom of entry and exit.
       • It means that there is no special cost that makes it difficult for a new company to enter an industry and produce, or to exit if it cannot make a profit. Therefore buyers can easily switch suppliers and suppliers can easily enter or exit the market. It is an important assumption for competition to really exist.
     • Market transparency
       • All market participants, buyers and sellers, are fully aware of the general conditions under which the market operates, having sufficient information on the price and quality characteristics of the products.

2. 2. Monopoly market

   • They are commercial spectra in which a single brand is responsible for the sale of a product or service. This situation is basically explained by the high number of entry barriers that are imposed on companies that aspire to compete.
     • A single product / vendor
       • Consumers find a single product that is also offered by only one vendor. This way, they have no other alternatives to choose from.
     • The product or seller can (and usually does) influence the market price and quantity
       • This occurs since there is no competition in the market, so the offering company can act on the price based on its interests.
     • There are no substitute goods
       • In this case, the consumer cannot choose a substitute good that takes away market power from the monopolistic firm.
     • Entry barriers are very large and can be of various types
       • When other companies try to access a market in a monopoly situation, they are faced with a multitude of impediments. This type of impediment can be governmental, economies of scale or of the own company that dominates the market, among many others.

3. 3. Imperfect competition market

   • It is the intermediate market between that of monopoly and that of perfect competition. It can be presented in two variants: either when there are many companies that offer similar (not identical) products, or when there is a high number of buyers but few sellers.
     • It has a small number of companies that make it up, therefore it is a small market type with low levels of production.
     • In general, it is the sellers who have the power to influence the price of the products, which are usually very high.
     • Products offered within imperfectly competitive markets are viewed as different by consumers.
     • Both sellers and buyers have different information about products, so there is no common information about them.
     • You do not have full freedom for new sellers to enter the market, as large capital investments are required to do so.
   • Types
     • Monopoly: when the manufacture or production of a certain product or service is in the hands of a single supplier.
     • Oligopoly: when the market is led by a minority of suppliers.
     • Monopsony: when there is only one buyer in the market.
     • Oligopsony: when there are few buyers or demanders of a certain product.

4. 4. Monopsony market

   • We are talking in this case of markets in which consumers have a leading role. That is, after their business decisions, they are capable of changing, or at least influencing, the price of products. Obviously, for this to be the case, the demand must be much higher than the supply. Customers, therefore, have a very high bargaining power in this model.
     • It is a market model in which there is a single buyer and a single plaintiff.
     • It has different types of sellers to make purchase offers.
     • It is a kind of market that is classified as imperfect and where, on certain occasions, conflicts and disagreements arise between sellers and buyers.
     • The buyer can obtain the current price and the quantity of goods he wants without being able to influence the price that has already been established.