The different types of market structures are as follows:
Perfect competition describes a market structure where competition is at its greatest possible level. To make it more clear, a market which exhibits the following characteristics in its structure is said to show perfect competition.
Perfectly have the following characteristics:
Have large number of firms.
Products are homogenous (identical) so customers have no reason to express preference for any firm.
Freedom of entry and exit into and out of the industry
Firms are price takers and have no control over the price they charge for their products.
Each producer supplies a very small proportion of total industry output.
Consumers and producers have perfect knowledge about the market.
Where the condition of perfect competition does not hold, ‘imperfect competition’ will exist.
Varying degrees of imperfection give rise to varying markets
Monopolistic competition is one of these – not to be confused with monopoly.
It has the following characteristics:
Large number of firms in the industry
May have some element of control over price due to the fact that they are able to differentiate marketing preferences, loyalty, and branding people with their product in some way from their rivals – products are therefore close, but not perfect, substitutes.
Entry and exist are relatively easy – few barriers to entry and exit.
Consumer and producer acknowledge imperfe...
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They may also operate a limit-pricing strategy to deter entrants, which is also called entry forestalling price.
May collude with rivals and raise price together, but this may attract new entrants.
Cost-plus pricing is a straightforward pricing method, where a firm sets a price by calculating average production costs and then adding a fixed mark-up to achieve a desired profit level. Cost-plus pricing is also called rule of thumb pricing.
There are different versions of cost-plus pricing, including full cost pricing, where all costs - that is, fixed and variable costs - are calculated, plus a mark up for profits, and contribution pricing, where only variable costs are calculated with precision and the mark-up is a contribution to both fixed costs and profits.
Cartel-like behaviour reduces competition and can lead to higher prices and reduced output.
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