According to Agarwal (2020) on “Perfect Competition Short Run”, perfect competition is a market structure that is characterized by several firms producing homogeneous products. In this type of competition, the firms are price takers, there is perfect mobility of labor, entry and exit of the market is free, and prices are not affected by the market share. Perfect competition markets are considered theoretical since all the characteristics are found in a specific market. An example of a perfect competition market is the agricultural markets, where there are a variety of homogenous products.
Perfect competition markets are very competitive and have comparable commodities. Internet sellers form perfect competition as there is a comparison of prices between sellers is enabled, thus giving customers adequate knowledge (Agarwal, 2020). For instance, for purchases on eBay, buyers can select favorable sellers by comparing prices and product specifications on the site. Foreign exchange markets use a homogeneous currency which creates a perfect competition.
In a perfect competition market, firms sell their products above the equilibrium price (Boyce, 2020). Firms analyze their prices and costs in relation to their quantity of output that attracts high profits or lowest losses (Figure 1). Perfect competitive firms increase production to gain profits and reduce prices to decrease losses.
Figure 1: Perfect competition (Source: Boyce, 2020)
According to Bloomberg (2019), a monopoly market structure entails instances where only a single company supplies essential or unique products in a specific region. The presence of a monopoly market is caused by barriers that prevent the entry of new competitors. Barriers that prevent the entry of other organizations include economic, geographic, and regulatory factors. Additionally, several monopoly markets have been identified with significant players being in the technology industry, such as Google, Apple, Facebook, and Amazon. The tech giants have dominated the industry due to their unquestionable size and power.
The monopoly companies have gained their dominance by buying out of possible rivals and competitors (Bloomberg, 2019). The tech monopolies are dominating the market on such aspects as internet search, online commerce, mobile apps, and digital advertising. The tech companies have a ready market globally and have established a strong brand reputation, thus attracting a large number of customers. The tech firms are valuable companies that are exploiting their users due to technological advancement. The exploitation has been termed as the network effects contributing to the firms becoming bigger and attracting more users (Figure 2).
A monopoly is present in the tech industry due to the large size of the industry. There are many consumers of technology globally, and the tech giants provide unique products and services to the clients. The tech monopolies have contributed to imperfect competition as there are various barriers to entry and exit. The tech companies are the price makers (Economics online.com, 2020) and have gained control over the tech market globally; an example is the Facebook acquisition of WhatsApp and Instagram.
Figure 2 Monopoly (Source: Economics online, 2020)
Monopolistic competition has been identified in common markets where there are many competitors, but each firm produces different products (Pettinger & Ottawa, 2019). The monopolistic competition market is flooded with small businesses, restaurants, and high-end street stores. Restaurants offer the same products, such as foods and beverages, but have incorporated unique elements.
According to an article by Pettinger & Ottawa (2019) on monopolistic competition, firms make their own decisions on output and prices. Knowledge concerning the markets and products is shared among all parties. There is product differentiation, and firms have the freedom of entry and exit. Monopolistic firms are the price-makers but do advertise their products (Figure 3).
Monopolistic firms generate supernormal profits (Pettinger & Ottawa 2019), thus attracting new entrants. New entrants in the market decrease the demand for products; hence prices and profits decrease. Monopolistic competition creates diversity through product differentiation. The firms have become more efficient, and innovative examples are the airline industry, the oil industry, the beer industry, the automobile industry, and the steel industry.
Figure 3 Monopolistic competition (Source: Pettinger & Ottawa, 2019)
According to Schechter & Schechter (2019) on the pro-market, oligopoly is a market structure that has a small number of firms whose operations do not influence each other. The market is made up of large companies such as Disney. Oligopoly markets are highly concentrated, with concentration ratios indicating the market share (Figure 4).
The market structure has few sellers who control prices and sales in the market. There are barriers to entry for small startup companies as most of the companies are large corporations that have knowledge of the industry. The firms have interdependence; therefore, activities such as changes in marketing strategies and prices of one firm affect other firms. The firms in the market have prevalent advertising, which is done on a national scale.
The oligopoly market has led to a concentration where an industry has only two or three dominant firms. The structure has been faced with problems as many firms are entering the market. The increase is attributed to a decline in competition, high prices, slow productivity growth, increasing inequality, falling labor income, and rising health care cost (Economics online.com, 2020).
Figure 4 Oligopoly (Source: Economics online.com, 2020)