Four Market Systems (summary)

9 Jul

  Market System

  There are four models of market system: pure competition, pure monopoly, oligopoly, monopolistic competition.

Let’s describe them briefly:

  • Pure competition- is a market structure that is composed of a very big number of firms that produce a standardized product. Entry and exit from this type of market is very easy.
  • Pure monopoly- is a market structure in which one firm (or a very few ones) is single seller of a product or service. Entry to this kind of market system is blocked, so one firm can rule the entire industry. Monopolists produce unique product and there is not any reason to difference it, since there are not competitors.
  • Monopolistic Competition-is characterized by relatively large number of suppliers who produce differentiated products. There is nonprice competition (each firm is trying to distinguish its product or service by some characteristics like quality, price). Entry to monopolistically competitive industry is relatively easy.
  • Oligopoly- is made up of sellers with identical or similar products so that the change in price of one may affect future decisions of other firms.

Pure monopoly, oligopoly and monopolistic competition are considered as imperfect competition.

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11 Responses to “Four Market Systems (summary)”

  1. Shannon M. Howell July 9, 2012 at 8:13 PM #

    If I understand this correctly, then gas stations are an example of an oligopoly. An example of Monopolistic competition might be e-readers. The US postal service would be an example of a monopoly (insofar as delivering to a mailbox or PO box is concerned). And, lastly, an example of a pure competition market would be, for instance, printer paper. Is that about right?

    • justdan93 July 9, 2012 at 11:26 PM #

      Yes, you may be right. It depends on the region you are living. If characteristics of these markets models describe firms in your state where you live then your opinion is perfectly true.

  2. ideasexplorer July 9, 2012 at 11:50 PM #

    Like all models and economic theories, these are just simplifications of reality. Much criticism has been made to them, especially to the assumptions of the pure competition model, which is at the same time the base of a great part of economic theory. However, these models are still a useful set of tool to understand the complex economy!

    • justdan93 July 10, 2012 at 12:13 AM #

      Yep it’s for beginners. Soon i will post something for advanced. I just need to pass more material!

      • ideasexplorer July 10, 2012 at 12:16 AM #

        Great justdan93! You are doing a great job for everyone. It is useful for both beginners to learn and the rest to review. Are you studying economics? :)

      • justdan93 July 10, 2012 at 12:28 AM #

        I will start studying economics at Univer. by September 2012. Right now i have graduated my school and i’m preparing for university life. So i don’t have any economics courses, i’m self-studying so i want to get advance (or good enough) at this subject by entering my university. I don’t post everything that i’ve learnt until now on this blog, because i don’t have enough time. As i understand you’ve studied or you are studying now economics?

      • ideasexplorer July 10, 2012 at 8:46 AM #

        I studied Bachelor in Economics and Master of Science in Finance.
        It’s wonderful what you are doing. It really helps a lot to get ahead; preparation is key to success. Once you get in the university, you will feel everything so much lighter and easier. Besides you are not only benefiting yourself with your blog, but lots of other people. Keep on justdan93!

  3. why am I here in a handbasket? July 10, 2012 at 12:22 AM #

    Dan. Can you blog about how to balance your checkbook? :).

  4. xmihox July 10, 2012 at 11:20 AM #

    Great Blog ヽ(。ゝω・)ノ☆

  5. alangent July 10, 2012 at 11:27 AM #

    What’s your view on whether (too) light regulation is blurring these categories and many markets are now operated as a cartel by the main players, as they increasingly dominate their markets? (I’m thinking petrol, supermarkets.) When was the last time you saw a real price cut that went against the grain in an attempt o grab market share? (UK View)

  6. Dorje July 10, 2012 at 11:55 AM #

    I like this post. I can kind of relate it to anthropology. How fuckin’ weird is that?

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