Market Structure
Read this short article and study the diagram. This is a good reference item identifying and defining the four basic market structures. In developing a strategy, one needs first to determine the structure the firm is competing in.
Neoclassical microeconomics is an explanation of the behavior of individuals, firms, and organizations within a market context. Their behavior is thought to be a function of their objectives and the constraints that exist because of technology, quantity/quality of inputs, and market structure. Market structures can be characterized by sellers or buyers or both. Most economics texts classify markets by seller. Generally, they identify 4 basic types of markets; (1) pure (or perfect) competition, (2) monopolistic (or imperfect) competition, (3) oligopolistic competition, and (4) monopoly. Pure competition is believed to produce ideal results in the allocation of resources. Monopoly is usually depicted as having less than optimal outcomes. The basic market structures based on sellers is shown in this figure.
Pure competition and Monopoly are at each end of the spectrum of markets. In fact, probably neither occur in market economies. Pure competition and monopoly are the boundaries and the "real world" (wherever that is) lies somewhere between the two extremes. Pure competition provides a benchmark that can be used to evaluate markets. The physician who attends you knows that 98.6° is a benchmark. Your temperature may not be precisely 98.6°, but if it deviates significantly, that deviation suggests problems. It might be in your best interest to know what the "normal" temperature is and the cause of the deviation from "normal".
Source: Larry Reynolds
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