Market Structure and Models

Market structure is a very important concept because the impacts of it affect the outcomes of the market. The market structure is organized according to key characteristics such as the number of firms in the market, the control over the price of the relevant product, the type of the product sold in the market, the barriers to new firms entering the market, and the existence of non-price competition in the market. The goal of the market structure is to arrange all of that affect in order to explain and forecast market outcomes. The structures focus on the affects of economic behavior on competition. These markets are classified according to the structure of the industry serving the market. First I will discuss Pure Competition. Pure Competition involves many firms producing a standardized product, identical to its competitors. Consumers will be unresponsive to which producer is selling in a purely competitive market, making sellers have no control over their prices, but since there are such a large number of suppliers of the product, no firm views another supplier as a competitor. There is little competition under pure competition. No single firm leads in the market under pure competition, which makes it a very desirable market. There are three stipulations that make a market structure "purely competitive." Homogeneity of product means that the product sold by any seller in the market is identical to the product sold by any other supplier. If products of different sellers are identical, 9 out of 10 buyers do not care who they buy from, as long as the price is the same. With a large number of buyers or sellers, each individual buyer or seller does not have any power to influence the price of the product. As a result, the buyers and sellers must accept the market price. The market as a whole establishes product prices, and individual