There are four main types of market structures. To begin with, we have a monopoly type of market structure. Here there is only one supplier and many consumers. Therefore, the supplier determines the price and earns super normal profits. Moreover, since customers have no other alternative the supplier is not compelled to change the quality of the products. Secondly, there is an oligopoly type of market structure. This is a market where there are just a handful of suppliers producing more or less similar products. To increase market share, each producer uses price as a fighting tool. Consequently, price wars are the order of the day in an oligopoly market (Talent, 2010a). A move by one supplier to either increase or decrease price triggers other suppliers to do the same.
There is also the monopolistic competition kind of market structure. Due to increased competition, suppliers in the monopolistic competition have differentiated products on sale. This is not only done by incorporating different and extra features in their products but also through different packaging. On the same note, price increase or decrease by one supplier does not affect the others because the market is big. Nevertheless, due to the increased cost of production profits earned are not high compared to oligopoly or monopoly market structures. Lastly, there is a perfect competition type of market structure. This is the most common type of market structure and it is characterized by many buyers and many sellers. Products on offer contain numerous features given that each supplier is trying to outsmart the others. Price is determined by the forces of demand and supply (Talent, 2010a). In this regard, suppliers only earn normal profits.
References
Talent (Speaker). (2010a). Market Structure [DVD]. United States of America: University of Phoenix.