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Discuss the Four Primary Market Structures and how they Differ

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Discuss the four primary market structures and how they differ. Give an example of each type firm.

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The Four Market Models

Market models are ideal types. They don't actually exist. They are used as mental boundaries when analyzing different kinds of markets. Almost always, a specific economy will have elements of all four. We might distinguish them by which of the four it exemplifies the most.

First of all, remember what they all have in common: they are materialist, they deal exclusively with how production is organized, they place capital, prices, employees and consumers in positions of greater or lesser power, and hence, these are also social theories. Each has an empirical and a normative component. Most of all, we can assume that, in general, firms in all market types have an interest in making products that people want and are willing to buy. Efficiency is another constant, since under no real circumstances would a wanton waste of resources make sense. All firms in all markets want to increase profits and market share, or at least, keep what they have. Most abstractly, each model is an ideology that has a certain mental scheme that justifies it.

The four types are:
Perfect Competition:
This is a theoretical model developed by Adam Smith. Of all the models, this is the one that is impossible to actually see in practice. It is typified by a large market with many small, independent producers. They are all making the same product. Customers have full knowledge of the owners, production methods and the product itself. New firms can enter the market effortlessly. Profit margins are barely extant, and all prices are the same. No one firm can affect the nature of the structure or the behavior of their competition. Consumers have all the power, while capital has very little.

While still an ideal type, such a model does exist in practice. It is a system where the market is dominated by a small number of large firms producing the same type of products. Examples of oligopolies are endless: ...

Solution Summary

The following posting discusses the four primary market structures and how they differ.