Types of Market Structures

There are four types of market structures

• Perfect Competition
• Monopolistic Competition
• Oligopoly
• Monopoly

Properties of Different Market Structures

     

Type of Market	Number of Firms	Freedom of Entry	Nature of Product	Shape of Demand Curve	Examples
Perfect Competition	Very many	Unrestricted	Homogeneous	Horizontal	Cabbages, Carrots
Monopolistic Competition	Many	Unrestricted	Differentiated	Downward slopping (relatively elastic)	Restaurants
Oligopoly	Few	Restricted	Differentiated or Undifferentiated	Downward Slopping (relatively inelastic)	Car Manufacturers
Monopoly	One	Completely Blocked	Unique	Downward Slopping (more inelastic than oligopoly)	Patent drugs

To understand these market structures one must know the relationship of a firm with its particular industry. this is best explained by table above. for further clarification we will analyze the demand and supply curves of firms in comparison to the industry that firm exists in.


The figure below shows the demand and supply of a firm in a perfect competition in comparison to the demand and supply of its industry

Firm vs. Industry in Perfect Competition

• The price of goods in a perfect competition is fixed because there are very many firms in the industry and one firm has no effect on the pricing decision.
•  If a firm in perfect competition increases its price, the customers would buy from some other firm since the product is the same.
•  Similarly there is no point of decreasing the price because one firm cannot cater to the whole industry's demand.