Market Structures

Market Structures

The first market structure to be discussed is the perfect competition or pure competition. Perfect competition, as defined by Buzzle.com, “is an ideal market scenario where all competitors sell identical products, each having a small share in the market.” In other words, perfect or pure competition is a market situation wherein all sellers or suppliers in the market sell similar, if not the same products as their competitors. Perfect competition consists of a market that has an infinite number of sellers and buyers. Economics Online defines perfect competition as A perfectly competitive market is a hypothetical market where competition is at its greatest possible level. Neo-classical economists argued that perfect competition would produce the best possible outcomes for consumers, and society. Since the sellers offer very similar products, they bring homogenous products in the market. All firms in the market are price-takers, they cannot dictate or control the price of their products since other firms sell the same products as well and so the price across all firms must be the same for perfect competition to exist. Because of the existence of many sellers, the market share of each firm immediately goes down in a perfect competition, giving them freedom to enter and exit the market whenever they want. One key characteristic of perfect competition is that perfect knowledge is present, with no failure of information and no time lag. This means that consumers have little or no risk when it comes to purchasing the products since a lot of information is readily available to them. Another key characteristic is that there are no barriers to enter into and exit out of the market since there are other firms that also sell the product. Products are also not branded, since firms produce identical and homogenous units of output. Many economists believe that it is the most ideal market structure when it comes to the protection of the interests of the...