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Characteristics And Types Of Market Structures

 Market Structures

Meaning of Market

            According to Prof. R. Chapman, “The term market refers not only necessarily to a place but always to a commodity and the buyers and sellers who are in direct competition with one another.”

            A.A.Cournot has defined as “Economists understand by the term ‘market’ not any particular place in which things are bought and sold but the whole of any region in which buyers and sellers are in such free intercourse with one another that the price of the same goods tends to equality, easily and quickly.”

Characteristic of Market

  • An Area – In economics a market does not mean a meticulous place but the entire area where sellers and buyers of a product are spread. Modern modes of communication and transport have made the market area for a product very wide.

  • One Product – In economics, a market is not associated to a place but to a specific commodity. Hence there are separate markets for diverse products. For instance, there are separate markets for clothes, grains, jewellery etc.

  • Buyers and Sellers – The presence of buyers and sellers is essential for the sale and purchase of a product in the market. In the topical times, the presence of buyers and sellers is not essential in the market for the reason that they can do trading of commodities merely by communication over phone or emails.

  • Free Competition – There must be free rivalry among buyers and sellers in the market. This competition is in relation to the price determination of a product among buyers and sellers.

  • One Price – The price of a product is the same in the market for the reasons that free rivalry amidst traders.

On the basis of above elements of a market its general definition may be as follows. The market for a product denotes to the whole area where traders of that product are spread and there is such free rivalry that one price for the product prevails in the entire region.

Market Structure

            Market structure denotes the nature and scale of rivalry in the market for commodities and services. The structures of market both for commodities and factor market are ascertained by the nature of rivalry existing in a specific market.

Determinants

There are a number of determinants of market structure for a specific commodity.
They are:

  • The number and nature of Sellers
  •       The market structures are influenced by the number and nature of sellers in the market. They range from large number of sellers in perfect rivalry to a single seller in untainted monopoly to two sellers in duopoly, to a few sellers in oligopoly and to many sellers of discriminated merchandise.

  • The number and nature of buyers
  •       The market structures are also subjective by the number and nature in the market. If there is a single buyer in the market, this is buyer’s monopoly and is called monopsony market. Such markets exist for the local labour employed by one large employer. There may be two buyers who act mutually in the market. This is called duopsony market. They may also be a few structured buyers of a produce. This is called oligopsony. Duopsony and oligopsony markets are typically found for cash crops like rice, sugarcane etc. where local factories purchase the entire crops for processing.

  •  The nature of product
  •       It is the nature of merchandise that decides on the market structure. If there is product demarcation, commodities are close surrogates and the market is characterised by monopolistic rivalry. On the other hand, in case of no product demarcation the market is characterised by perfect competition. And if a product is entirely diverse from other commodities, it has no close surrogates and there is untainted monopoly in the market.

  •  The conditions of entry into and exit from the market
  •       The stipulations for entry and exit of firms in a market depend upon profitability or loss in a specific market. Profits in a market will attract the entry of new firms and losses lead to the exit of non-performing firms from the market. In an ideal rivalry market, there is liberty of entry or exit of firms. But in monopoly and oligopoly markets there are blockades to entry of new firms.

  • Economies of Scale
  • Firms that achieve large economies of scale in production grow large in competition to others in an industry. They tend to tidy out the other firms with the consequence that a few firms are left to compete with each other. This leads to the emergence of oligopoly. If only one firm attains economies of scale to such a large extent that it is able to meet the market demand as a whole, there is monopoly.

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