Different Market Structures

DIFFERENT MARKET STRUCTURES

by Antonio C. Antonio

November 26, 2013

Understanding the different market structures in the Philippines will allow us to appreciate the dynamics of production and consumption systems.  Economics has relevance to the study of environment and natural resources management.

Here are the different market structures: 

1. PURE or PERFECT COMPETITION – Pure or Perfect Competition is a market structure where there are many players (often small) in the market and there is an absence of big players who could dictate the price of a homogeneous good (or service).  Both buyers and sellers have no control over prices as this is dictated by market forces (supply and demand).  Pure or perfect competition is advantageous to both producers/seller (since profits are stable) and the buyer (since supply is stable too).  This is often the market situation for consumer goods such as rice, fish, meat, canned goods, etc. 
2. MONOPOLY – Monopolies exist when an individual, a enterprise or a small circle of enterprises are the only source, producer, supplier or provider of a particular good (or service) with no substitutes.  There is no of significant economic competition to produce or provide the good or service and there is also a absence or lack of substitutes for these goods and services.  In monopolies, profit maximization is the dominant policy direction… but often policed by a government agency to control them.  In some instances, it is the government which establishes monopolies like in the case of coconut during the Marcos administration.  Monopolies posses significant market power and are, therefore, in control of the prices while also having the luxury of excluding new players from entering their market structure.  Monopolies are not always big players, a small beauty parlor can also be a monopoly in a small community if it provides an exclusive service (or good) in that particular community.  Monopoly is different from monopsony since the former refers to the seller while the latter refers to the buyer for a particular good or service.  A monopoly is also different from a cartel where several producers and providers producers and providers connive and manipulate control over prices and supply of an exclusive good or service.  The term “cartel” is commonly used to describe the system of strategies and business attitudes of players in a monopolistic market structure.  An example of monopolies are the toll roads (NLEX, SCTEX, TPLEX, NLEX, Skyway, etc.) where the only alternative to them are narrow and poorly maintained back roads which very few commuters prefer to use.
3. OLIGOPOLY – There is a thin line that divides oligopolies and cartels.  A cartel and oligopoly is dominated by a few entities (individuals or enterprises) that exercise control over an exclusive good or service.  This, therefore, gives these players in this market structure definite control over prices and production output (supply).  Characterized by only a few “big time” players in the market, oligopolies often lead to higher prices because of very little competition.  There are two oligopoly; Pure Oligopoly and Differentiated Oligopoly.  In pure oligopolies the goods and services produced and provided are identical (homogenous) while in differentiated oligopolies they are different (heterogenous).  An example of oligopoly is the Mining Council of the Philippines which are the exclusive MPSA (Mineral Production Sharing Agreement) with our government.  Although not all of them extract the same mineral resource, they collectively dominate the mining activities in the country.
4. MONOPOLISTIC COMPETITION – Monopolistic competition is the reverse of pure competition in the sense that the many goods and services being offered in the market are basically the same but are not actual substitutes.  In monopolistic competition, the producer and provider of a good or service is not too concerned about prices (his own or his competitors) but does not have distinct control over market prices.  The only time producers could dictate prices is when they organize themselves into formal associations and agree on price setting.  Monopolistic competition markets have the following characteristics and features: (1) There are many producers in the market and have varying degrees of market shares; (2) No single individual producer exercise control over prices; (3) Monopolistic competition shares the same characteristics as perfectly competitive markets; (4) The difference between pure competition and monopolistic competition is that the former offers homogenous products while the latter provides heterogenous products; and, (5) The buyers are not too price sensitive and do not have preferential brands.  An example of monopolistic competition products are the many bottled water in the market today.

 Just my little thoughts…