4.02 Market Structures

Introduction

Think about all of the ways we tend to place animals, people, and events into categories. We do this because it enables us to understand the specific nature of the item because of the common characteristics shared with others in the group. Examples include kingdoms and phylum for animals, freshman and seniors for class ranks, tragedies such as Pearl Harbor and 9-11, and even our impressions of different conferences in college football. Other markets of course exist also such as the ever-popular flea market for bargain hunters, farmer’s market for cooks and bakers, and the stock market for investors.

In economics, all businesses are placed in one of four different categories of market structures. We identify the four market structures in economics to include pure (perfect) competition, monopolistic competition, oligopolies, and monopolies. The last two market structures, oligopolies and monopolies, have so much power to set prices that the government must intervene and correct for the potential failure. This lesson focuses not just on the different categories of markets, but also on the need for government intervention when the market fails the consumer, the supplier, or both.

The first structure that will be discussed is pure (perfect) competition. This structure does not exactly exist in the real world, but as you will learn the closest examples are in the businesses associated with agriculture.

While you may not be as familiar with the market structures of monopolistic competition and oligopoly, you will soon learn that you have interaction with those markets on an almost daily basis.

Most people assume that monopolies do not exist, but you will learn that the government allows them to exist in several different industries, though with increased regulation.