Arguably, there are two broad categories of market structures; the perfect market structure and the imperfect market structure. The term ‘market structure’ in this context refers to the way sellers and buyers usually operate in order to meet the supply and demand of goods at a given time period. Generally, the perfect market has such attributes as; homogeneous goods, many buyers and sellers, free entry and exit, as well as products with close substitutes. On the other hand, the imperfect market structure is the kind of market structure that does not display the characteristics of the perfect market, (Gregory, 2008). Examples of the imperfect market structure includes; monopoly, oligopoly, as well as monopolistic competition.
Admittedly, imperfect competition differs significantly from a monopoly market structure. To begin with, in the case of imperfect competition there are many buyers and sellers in the industry. As such, it is not easy for sellers to manipulate prices at will although they may possess a significantly big market share, (Karl, 2007). Moreover, there is free entry and exit in this kind of market structure. Therefore, if a firm is enjoying high profits chances of other firms penetrating into the market to capitalize on these profits are very high. On the other hand, if there are no profits that are being made, other firms will exit from the market to avoid incurring losses. This explains the fact that in this particular market structure there are only normal profits being made in the long run. Besides, there is interdependence of firms that exist in the industry.
In the case of a monopoly, there is only one seller supplying goods to many buyers and consumers. Due to the barriers that exist, there is no free entry and exist as is in the case of imperfect market structure, (Gregory, 2008). Many a times, it is a monopoly that sets prices for its products. In order to increase their revenues, monopolies usually employ the strategy of price discrimination unlike in the case of the imperfect market where price differentiation is undertaken. It is also important to note that in the case of a monopoly, the firm is as well the industry as there are no competitors. Lastly, unlike in the imperfect market competition where information is almost perfect, in a monopoly kind of market information is imperfect.
It is argued from the consumers’ point of view that monopolies are bad. To begin with, there is a lower consumer surplus in a monopoly market as compared to the perfect competition. Moreover, output is much lower than in the other kind of markets. This is mainly because monopolies produce in less quantities but sell at high prices. As such, they can be said to be exploiting customers, (Karl, 2007). Additionally, consumer sovereignty is lost because monopolies employs price discrimination and consumers have no choice but have to buy what is provided by the monopoly. A good example that can be used to illustrate how a monopoly is bad can be found in the motor vehicle industry.
Imagine a scenario where by this industry dominated by a single producer for motor vehicle. Clients would be forced to buy vehicles from this particular producer. Besides, they could not have a choice as far as models of vehicles are concerned. It could also be difficult for most people to own vehicles as they could not afford to buy one. Luckily, the industry is dominated by many car producers and that is why many people can own cars according to their incomes as well as taste and preferences.
In my opinion, development of monopolies should not be encouraged. Regulations that ensure that there is no emergence of monopolies should be put into place by the government so as to protect consumers. However, some sectors of the economy are better run by monopolies. For instance, provision of basic education in a country should be undertaken by the government in order to ensure that all get equal chances to education.
In conclusion, as mentioned above there are two broad categories of market structures; the perfect and imperfect market structures. The imperfect market includes monopolies and oligopolies. It has also been mentioned that monopolies are not good from the consumers’ point of view as it exploits them. Hence, monopolies should never be encouraged to develop.
Gregory, M. N. (2008). Principles of Economics. NY: Cengage Learning.
Karl, E. (2007). Principles of Microeconomics. Washington: Pearson Prentice Hall