In economics, market structure is the number of firms producing identical products which are homogeneous. The types of market structdures include the following: 1) Monopolistic competition, also called competitive market, where there is a large number of firms, each having a small proportion of the market share and slightly differentiated products. 2) Oligopoly, in which a market is dominated by a small number of firms that together control the majority of the market share. 3) Duopoly, a special case of an oligopoly with two firms. Monopsony, when there is only one buyer in a market. Oligopsony, a market where many sellers can be present but meet only a few buyers. Monopoly, where there is only one provider of a product or service. Natural monopoly, a monopoly in which economies of scale cause efficiency to increase continuously with the size of the firm. A firm is a natural monopoly if it is able to serve the entire market demand at a lower cost than any combination of two or more smaller, more specialized firms. Perfect competition, a theoretical market structure that features no barriers to entry, an unlimited number of producers and consumers, and a perfectly elastic demand curve. The imperfectly competitive structure is quite identical to the realistic market conditions where some monopolistic competitors, monopolists, oligopolists, and duopolists exist and dominate the market conditions. The elements of Market Structure include the number and size distribution of firms, entry conditions, and the extent of differentiation.
These somewhat abstract concerns tend to
determine some but not all details of a specific concrete market system where
buyers and sellers actually meet and commit to trade. Competition is useful because it reveals
actual customer demand and induces the seller (operator) to provide service
quality levels and price levels that buyers (customers) want, typically subject
to the seller’s financial need to cover its costs. In other words, competition
can align the seller’s interests with the buyer’s interests and can cause the
seller to reveal his true costs and other private information. In the absence
of perfect competition, three basic approaches can be adopted to deal with
problems related to the control of market power and an asymmetry between the
government and the operator with respect to objectives and information: (a)
subjecting the operator to competitive pressures, (b) gathering information on
the operator and the market, and (c) applying incentive regulation.