7. What are the main types of market structures? Characterize each type.

There are 4 kinds of market structures: perfect competition, monopolistic competition, oligopoly and monopoly.

Perfect Competition: Many Buyers and Sellers

The laws of supply and demand operate as we have described them only in perfect competitive market. A perfectly competitive market requires all of the following conditions:

• Many buyers and sellers; no individual or group can influence the behaviour of the market.

• Identical goods or services offered for sale.

• No buyer or seller knows more than any other about the market. The information is available to the general public.

• Buyers and sellers are able to enter or leave the market at will.

Securities markets, however, are good examples of perfect competition. Perfect competition and perfectly competitive markets exist in only a few businesses or industries.

Monopolistic Competition: Many Unique Products

In fact, most businesses try to make consumers believe that their products and services are special or unique. Economists describe a market with many sellers providing similar but not identical products as monopolistic competition. Buyers sell similar products, but they are not the same in the minds of those who prefer one over the other. The effort to make a product more attractive than the competition’s distinguishes monopolistic competition from perfect competition.

The process of creating uniqueness in products is known as product differentiation. Product differentiation, when it is successful, enables a firm to create product loyalty so its customers prefer its products over the competition’s.

Oligopoly: A Few Sellers

Oligopoly (олигаполи) is a market where a few large firms dominate. Breakfast cereals, automobile and computer business are examples of oligopolies.

Oligopolies exist because it is difficult for competing firms to enter the market. Circumstances that make it difficult to enter the market are described as "barriers to entry." One such barrier is the high cost of entry. The capital needed to enter the automobile manufacturing business, for example, would run to billions of dollars.

The products of certain industries, such as aluminum, chemicals and electronics, are protected by patents. Competing firms cannot enter those industries unless they pay the patent holders for permission to use the process or find a new method of production not covered by existing patents.

Price competition is less effective where there is oligopoly. Firms know that if they reduce their prices the competition will do the same.

• Price leadership is the practice of one firm in the industry, usually the largest, setting a price which other firms follow.

• Collusion (сговор) is a secret arrangement between two or more firms to fix prices or share the market. These agreements are usually illegal.

• A Custom is the prac­tice of establishing prices and market shares based on long­standing tradition.

Monopoly: One Seller

A market in which there is only one seller is a monopoly. In a monopoly supply is determined by a single firm. This gives that firm the power to select any price it wants. It will choose the price that yields the greatest profit.

Monopolies have the following characteristics:

• A single seller or monopolist.

• No close substitutes. The product sold by a monopoly is different from those offered by other firms.

• Barriers to entry (энтри).