The structure of market depends up on many factors like number of buyers and seller, competition, nature of product, degree of price control etc. Market refers to the entire area where buyers and sellers of a commodity are spread over and the commodity bought and sold by them tends to have the same price over the whole market.
FEATURES OF MARKET STRUCTURE
(1) Whole Area : In economics, the market does not refer to a specific area where buyers and sellers gather rather it refers to the whole area buyers and seller spread over. An interaction is found between them. This area can be a district, state, country and world. For example, the market of cloth is spread over the whole world because the sellers and buyers of cloth are over the whole world.
(2) Free Competition: A free competition is found among the buyers and sellers in the market. Every buyer makes an effort to buy a product at minimum price and a seller makes an effort to sell his product, at maximum price, as a result of which, single price of a product prevails in the market.
(3) Buyers and Sellers: The main feature of market is that there is a coordination of buyers and sellers in the market i.e. there must be both buyers and sellers of a product in the market. A direct trading i.e. gathering of buyers and sellers is not essential for a market. They can also buy and sell a product through indirect contact like mail, telephone, internet, etc.
(4) Commodity: The presence of a commodity is very essential in economics for the existence of a market because a market can not be even imagined without a commodity. There is a separate market for every market in economics e.g. rice market, cotton market, sugar market, wheat market, etc.
CLASSIFICATION OF MARKET STRUCTURE
(I) Perfect Competition : Perfect competition is that market situation in which there is large number of buyers and sellers. They produce identical product and the price of such a product is determined by industry. All the firms accept this price i.e. firms are price taker. The group of all the firms producing identical goods is called industry. The firms have complete freedom to enter into or exit from the industry.
(II) Monopoly: Monopoly is that market situation in which there is a single seller of a product.There is no close substitute of his product i.e. no other product can be used in its place.
(III) Imperfect Competition : Imperfect Competition is the midway between perfect competition and monopoly. It includes the properties of both monopoly and perfect competition. Imperfect competition includes ‘Monopolistic Competition’, ‘Oligopoly’ and ‘Duopoly which have been explained here-as:
- Monopolistic Competition: Monopolistic competition is the most important and operative form of imperfect competition. It was explained by Prof. Chapman in his book Theory of Monopolistic Competition’ (1933) Monopolistic competition is that state of market which has the features of both monopoly as well as perfect competition.
- Oligopoly: Oligopoly is that state of market in which there are few sellers of a product i.e. oligopoly is a special case of imperfect competition. It is a market where there are few sellers selling homogeneous or differentiated products and they depend on each-other with regard to production and price related policy.
- Duopoly: Duopoly is a special case of imperfect competition in which there are only two sellers. Both the sellers are independent with regard to price and production related policy but every firm considers the price of its competitor while determining the price of its product. Thus, the market can be classified into various forms.