essay on market structure

Market Structures Essay

Introduction, types of market structures.

In an ordinary market structure, there is the assumption that there are several and different sellers and buyers. The result of this is fair competition where price of goods is determined by the forces of demand and supply. This is so because, in such a market, both the seller and buyer are equally able to influence the price.

However, this is not always the case. Some market industries have only a single seller or much fewer sellers than consumers, limiting the buyer’s ability to influence the price. This paper discusses the various market structures that exist in our market today and the various pricing strategies that could be applied in their management.

Pure monopoly

This type of market exists when there is only a single seller controlling the supply of goods or services in the entire market. He alone can control the price and prevents other businesses from entering the market. They commonly exist in a government-regulated setting. A case in point is the provision of electric and Natural gas utilities in the United States.

The government is the sole provider of these utilities and regulates their delivery to the public through the state, federal and local agencies. The prices are not arrived at through the forces of demand and supply but by the structures of the government. “The agencies govern the prices they charge, the terms of their services to consumers, their budgets and construction plans, and their programs for energy efficiency and other services,” (Regulatory Assistance Project 2011, P. 3).

Competition in this sector cannot thrive since the government provides subsidies to these utilities so as to provide cheaper services to the public, something that small private entities are unable to do. In addition, the infrastructural and technological requirement for the provision of the services would be so much of an expense for a private entity to meet.

Even though the government is the price maker here, it cannot set prices at a level that the consumer will not be able to afford if it wants to make profits. To set the prices, the monopolist should use the market demand curve and use it to set its own prices. The position marginal revenue for the monopolist should be less than the marginal revenue (MR). The position and elasticity of the demand curve works to limit the pricing mechanism of the monopolist.

The firm can only make maximum profits, on a short term, where the additional cost used to produce one more unit is equal to the resulting revenue from that one unit. For normal profits, the average revenue (AR) should be equal to the Average Total Cost (ATC). In the long run, the firm will only make profits where the AR is greater than the average cost (AC). (Mcconnel & Brue, 2009)

Pure Competition Market structure

This is a kind of a market where no single entity monopolizes the price determination process. Prices of goods are determined by forces of demand and supply and every player in the market has a part to play. A classic example would be a street vendor business.

In this kind of business, there is a large number of buyers and sellers and anyone may enter or leave the market at will without any barrier to doing so. Both consumers and producers are well informed of the prices and quality of goods and goods are homogenous across the market without much differentiation.

Every partaker is interested in maximizing profits as opposed to monopolizing the market whose returns are non-increasing to scale. Factors of production are freely mobile within the market with flexibility to ever-changing market circumstances. There are no new firms in the industry thus the same number of firms remains throughout.

In this market, the price is normally given by the demand and supply curve, as determined by the market forces, hence referred to as a ‘price taker’. The firm will sell its products at the current market prices and has no power to alter those prices. The stock is fixed while the supply curve will be perfectly elastic. In the short run, the firm can try to increase supply by increasing variable inputs. Profit will be maximized when MR is equal to MC. The firm must however fix their output to the prevailing market prices.

In the long run, the firm may change their unit of output as new firms enter the market. Supernormal profits will be realized where AR is greater than AC. When AR is greater than AC small firms starts quitting the market resulting into a decreased price. This will go on until AR is equal to AC and the firm makes normal profits. (McConnell & Brue, 2009)

Monopolistic Competition

This is a form of market where sellers deal with competitive products but which are differentiated from one another. It is almost like a perfect competition but though there are many firms in the industry, the products of each company are differentiated to make them unique to products of other firms.

An example is the Nike shoes. Even though many firms make shoes, which are equally competitive, only Nike makes that kind of shoe and one cannot obtain it from any other firm. The shoe is homogenous and specific to the firm and their differentiation gives monopoly over Nike to make the shoe alone.

Here, just like perfect market, the firm will take the market prices as determined by rival firms and will be forced to disregard their own influence on prices. In the short run, the firm may determine the prices depending on its level of differentiation and will have the same effects as a monopoly making huge economic prices.

However, as time goes by and competition increases, the effect of differentiation loosens gradually and the market changes to a perfect competitive one, with less profits. At the optimum quantity of production and optimum price, the firms will now earn normal profits. The equilibrium point, no new firms will be entering the industry.

Oligopoly market structure

This is a situation where there are few sellers of a commodity. The commodity being sold is however very similar but not identical to the others in the market. Products are close substitutes of each other but each firm has monopoly power over its own product. It also includes a duopoly where there are only two firms dealing with the product, e.g., Coca-cola and Pepsi. These two companies are the only known producers of carbonated soft drinks, yet their products are differentiated from each other.

For other firms to enter the market, they will require heavy investment and highly developed technology and incur high costs of promotion, thus posing a major barrier to entry of new firms and competition. The existing firms may also decide to merge, presenting even more difficulty to new entry. Both sellers have a substantial amount of influence on the pricing policies but there is mutual interdependency in price. The prices therefore remain relatively stable.

In this case, the pricing of Coca-cola will affect Pepsi’s price appreciably and the vice versa. Therefore, the best way is to agree, as between the two firms, on a pricing policy that is comfortable to the two firms. When such collusion of price determination occurs, the firms agree on an identical price, normally high, maximizing their profits and minimizing the production costs.

The pricing may be done through cost-plus pricing, which involves adding percentages of profit margin to Average Variables Cost to obtain the price. It may also be arrived at through the Mark-up pricing. Here the percentage mark-up it predetermined to cover the average margin. The AVC is estimated through the units of output produced over a given period of time. The level of output is used to determine the average cost.

Monopsony competition

Denotes a situation where one buyer buys from several existing sellers and he is therefore, the main determinant of the price in the entire market.

It is mostly found in the market for the exchange of factor services. The price he sets is lower than the market price and the quality exchanged is not correspondent to the price. For example, major sports clubs such as the National Baseball Association (NBA).

A baseball player wishing to be professional baseball player can only seek employment from NBA only. NBA will determine the minimum factor price which the player will and can take.

Though the monopsony is the price maker, if he wants to obtain quantity services, he has to part with a higher price or incur additional expenses or wages to hire more workers. The additional wages will enable him to earn more profits. These additional expenses are the marginal factor cost and the additional profits are the marginal revenue product. For maximization of profits, the firm should hire the quantity equal to the marginal factor cost and marginal revenue product, where these two curves meet, (Africa Awards, 2011).

The basic assumption of the existence of a perfect competitive market therefore, rarely exists. We have seen that there are markets dominated by one or two sellers or even one buyer.

Each market structure’s existence, however, is dependent on its power to influence the market price. There are also other minor types of markets that exist apart from the ones covered in this paper, for example a bilateral monopoly-duopsony, a market with two buyers and one seller. Also

Bilateral oligopoly-monopsony; one buyer and few sellers. However, all these are embedded in the five main ones discussed above.

Africa Awards. (2011). Market Structures: Monopsony , AmosWEB Encyclynomic WEB*pedia. Web.

McConnell, Campbell., & Brue, Stanley. (2009). Microeconomics: Principles, problems, and policies . New York: McGraw Hill. (18th Edition).

Regulatory Assistance Project. (2011). Electricity Regulation in the US: A Guide, Home Office, 50 State Street, Suite 3, Montpelier, Vermont 05602.

• Chicago (A-D)
• Chicago (N-B)

IvyPanda. (2023, December 9). Market Structures. https://ivypanda.com/essays/market-structures/

"Market Structures." IvyPanda , 9 Dec. 2023, ivypanda.com/essays/market-structures/.

IvyPanda . (2023) 'Market Structures'. 9 December.

IvyPanda . 2023. "Market Structures." December 9, 2023. https://ivypanda.com/essays/market-structures/.

1. IvyPanda . "Market Structures." December 9, 2023. https://ivypanda.com/essays/market-structures/.

Bibliography

IvyPanda . "Market Structures." December 9, 2023. https://ivypanda.com/essays/market-structures/.

• AR and VR for Maritime Industry Training
• The Technology, Applications, and Usage of Augmented Reality
• Digital Storytelling and Augmented Reality
• The "Ar'n't I a Woman?" Book by Deborah White
• Action Research Impact on the Organization's Activities
• Vietnam Shadows: The War, Its Ghosts, And Its Legacy by A.R. Isaacs
• Ar'n't I a Woman by Deborah Gray White, and Plantation Mistresses by Catherine Clinton
• Augmented Reality in Business Applications
• Virtual and Augmented Reality in Ten Square Games
• Subsequent Cloning of PARK2 Gene
• Similarities Between Capitalism and Socialism. Compare & Contrast
• Compare of Capitalism and Socialism
• Money and Modern Life
• The mysteries of Capital
• Relationship Between Economic Woes and Having Children

  Take 10% OFF— Expires in h m s Use code save10u during checkout.

Chat with us

• Live Chat Talk to a specialist
• Self-service options
• Search FAQs Fast answers, no waiting
• Ultius 101 New client? Click here
• Messenger  

International support numbers

For reference only, subject to Terms and Fair Use policies.

• How it Works

Learn more about us

• Future writers
• Explore further

Ultius Blog

Essay on market structure.

Select network

Business competition takes on different forms depending on the type of market structure present in a given industry. This sample essay explores the four primary models of market structure:

• Perfect competition
• Monopolistic competition

Different types of market structure and competition

In the world of economics, the competition between businesses is not always the same or level. Certain fields of industry have very different types of markets than that of others. Where one business could find itself in a field of competition where the playing field is leveled and easy to gain a foothold within, others find themselves in playing fields that are heavily stacked to favor one (or several large) industrial player. The most common forms of market structure that are seen in the economic world are:

All of these market structures have defining characteristics that separate them from each other and are all set up in a way that will have a dramatic distinction on how the competition within that market works. The defining characteristics of the market structure will be one of the most important determining factors in how many, as well as, how large the major players within that particular market become.

One such example of a company that operates efficiently within its particular market structure is Samsung Electronics. By understanding and playing to the strengths of the market structure that the company finds itself within, Samsung Electronics has been able to become one of the largest and most financially successful companies in the business world.

Perfect competition and equilibrium within the market structure

The first market structure to be described is named perfect competition. This market structure is most easily recognized by the fact that its low barriers for entry on both the buyer and seller allow for the continued operation of a large number of firms (Econ Guru, 2006). With a market structure such as this, new firms are able to constantly enter the market so long as they offer a product or service to a consumer base that is well received.

The economic efficiency within the perfect competition market structure, therefore, is seen to be very high because of these low entry barriers for new firms, which allows for a constant and continued level of competition to be maintained by the different number of firms within the particular market (Riley, 2012). One of the benefits of perfect competition is easier access to market segmentation and determining the demographics of the market . One of the most surprising factors about this sort of market structure, however, is seen when examining the innovative behavior of firms within this market.

Upon first glance, one would naturally be inclined to believe that the innovative behavior for a perfect competition market would be very strong because start-up firms would want to bring new, creative ways to market in order to propel their firms into a position of exposure and success. Research shows this hypothesis to be incorrect, though. Instead, the innovative behavior of a perfect competition market is relatively weak.

“In capitalist reality as distinguished from its textbook picture, it is not that kind of competition which counts but the competition which commands a decisive cost or quality advantage and which strikes not at the margins of profits and the outputs of the existing firms but at their foundations and their very lives,” (Riley, 2012).

The old style monopolistic competition market structure

The next type of market structure to be examined is the monopolistic competition market structure.

Within this type of market, one would typically expect to see a large number of firms that produce a “congeneric product with distinguishable differentiations,” (Econ Guru, 2006).

This means that firms within this market structure will have many different competitors within the market, but each competitor will be selling a slightly different type of product. Within this market, the entry barriers for both the buyer and the seller are very low and allow for easy entry or exit from the market (Hubbard & O’Brien). Compare Google Docs and Microsoft Word for example. Both companies offer data and word processing software that have similar but distinctly difference attributes.

One of the distinguishing features for firms within this market structure comes from the pricing found within it. Within a monopolistic competition market, the firms act as the price makers; they can set, raise, and lower the price of their products because they are selling something that is highly individualized (Economics Online).

Because of the set up of this market structure, the level of innovation is considered to be quite strong as firms entering the market can make subtle changes to existing products to form new, unique ones. This market structure, therefore, places a high emphasis on advertising.

Firms that operate within the monopolistic competition market are, “often in fierce competition with other (local) firms offering a similar product or service, and may need to advertise on a local basis, to let customers know their differences, ” (Economics Online).

Studying high-level marketing? Consider using Ultius for your thesis needs .

Monopoly's role within a structured economy

A third market structure seen in the economic world is the monopoly. The monopoly is characterized as a market in which there is only one provider for a good or service to consumers (Econ Guru). Within this type of market structure, the barriers for entry are extremely high as the firm with all of the power in the market can undercut its prices and force competitors out of the market. The United States started to abolish monopolies within the nation during the 1890's with the enactment of the Sherman Antitrust Act .

From a buyer’s perspective, the barriers are low as their selection for products or services is so limited. In a pure monopoly with only one firm controlling the market, the type of product is very limited; in fact, it is exclusively limited to what that particular firm offers to its consumers (Riley, 2012).

Being the controlling power of the market, a firm operating within a monopoly is considered to be a price maker in that it will be able to continually set, raise, and lower the cost of its offered product or service. Within this type of market structure, the economic efficiency does run the risk of being damaged as the controlling firm will not have to deal with any competition, which could allow for the firm to become inefficient over time (Riley, 2012).

The same holds true for the innovative behavior within a monopolistic market. The controlling firm has no real reason to be constantly reimagining and redesigning its products or services and can instead release upgrades and updates at its own pace with no real urgency. Although, it is worth noting that a firm that holds a monopoly on the market could also have a strong innovative behavior because it is able to spend a great deal of its profits on research and development.

Oligopolies and corporations' efforts to control the market

The final market structure to observe is the oligopoly. Similar to a monopoly in many regards, the oligopoly has one major difference when compared to the former. Within a monopoly, there is one firm that controls the market, whereas an oligopoly has a few firms that dominate the market (Econ Guru, 2006). A market structure such as this will place considerable barriers on new firms that are entering the market as they must compete with several corporate giants, but will put limited barriers on the buyer because of the different options available to him or her.

The firms that dominate the market of an oligopoly can act, for the greater part, as price makers so long as the dominant firms keep their prices relatively similar (Riley, 2012). One such example of this occurring in the real world is seen in the gas industry. The large firms that control the industry are able to set the price for gasoline to whatever they should choose so long as the competition does not dramatically lower their own prices and attract a larger proportion of the market to utilize its product exclusively. It is within this market that the innovative behavior is observed to be the highest (Riley, 2012).

The dominant firms are seen to spend a significant portion of their marketing resources on research and development so that they can have the most innovative products to offer to their consumer base in order to attempt to gain a larger control of the market and gain a competitive advantage over their major competitors. It is this sort of market structure that Samsung Electronics finds itself a part of.

Samsung Electronics operates in a market that is clearly an oligopoly. One of the major components to this firm is seen in its cellular phone sales. In this market, Samsung operates as a dominant force along with such companies as Apple, Motorola, and LG. Outside of these major players, the competition is much more limited.

It is extremely difficult for outside firms to gain a foothold in this market because the dominant firms have such a large percentage control of the consumer base currently. The effectiveness of the market structure is extremely beneficial for Samsung, and they have taken full advantage of it to become one of the most dominant firms in their particular market. It is directly from the structure of the market that the forms of labor and demand are shaped for Samsung.

Samsung and the oligopoly

The demand that Samsung receives is based almost entirely as a consequence of the market structure of an oligopoly. Because Samsung created a business strategy that is able to dominate the market and place a high emphasis on the research and development of new, innovative products, the firm is able to offer technologically superior products to its consumer base that allows for the demand for its products to rise.

The Galaxy S III is a perfect example of this. This particular product is so innovative and well designed that it has allowed Samsung to become one of the top sellers of mobile phones worldwide and has consistently beaten out the iPhone 5 (Samsung’s main competition from Apple) on a consistent basis. In terms of labor, as well as supply, the same basic principle holds true.

It is because of the dominant share of the market that Samsung controls by successfully navigating its market structure that allows for the company to produce so many products and keep its supply high enough to meet the demand facing it, and in order to produce such a high supply of new, innovative products, Samsung is able to employ a large labor force for everything from assembly of a product to research and development of new ways to design, market, and ultimately sell to its consumer base.

Market structures play a key role in the way a firm is able to do business. By understanding what sort of market structure that a firm is placed in, that firm will be able to see if the cost of business is worth continuing to fight for. The factors that separate the different types of market structures can be the difference in whether or not a start-up firm will be able to become successful or be driven from business by the major players that currently exist in that particular market structure.

It is by understanding and playing to the market structure that certain companies such as Samsung Electronics have been able to become so successful. Different market structures place emphasis on different factors; however, one truth is held. In the end, every firm is simply trying to push its products or services onto its consumer base. This is one of many economic axioms that has come about as a result of study and research paper writing .

Econ Guru. (2006). Market structure. EconGuru Economics Guide, Retrieved from http://www.econguru.com/micro/market-structure.shtml

Economics Online. (2012). Monopolistic competition. Economics Online, Retrieved from http://www.economicsonline.co.uk/Business_economics/Monopolistic_competition.html

Hubbard, R. G., & O'Brien, (2012). Economics. (4th ed.). Prentice Hall.

Riley, G. (2012, September 23). Market structure summary. Tutor2u, Retrieved from http://www.tutor2u.net/economics/revision-notes/a2-micro-market-structures-summary.html

https://www.ultius.com/ultius-blog/entry/essay-on-market-structure.html

• Chicago Style

Ultius, Inc. "Essay on Market Structure." Ultius | Custom Writing and Editing Services. Ultius Blog, 06 Dec. 2013. https://www.ultius.com/ultius-blog/entry/essay-on-market-structure.html

Copied to clipboard

Click here for more help with MLA citations.

Ultius, Inc. (2013, December 06). Essay on Market Structure. Retrieved from Ultius | Custom Writing and Editing Services, https://www.ultius.com/ultius-blog/entry/essay-on-market-structure.html

Click here for more help with APA citations.

Ultius, Inc. "Essay on Market Structure." Ultius | Custom Writing and Editing Services. December 06, 2013 https://www.ultius.com/ultius-blog/entry/essay-on-market-structure.html.

Click here for more help with CMS citations.

Click here for more help with Turabian citations.

Ultius is the trusted provider of content solutions and matches customers with highly qualified writers for sample writing, academic editing, and business writing. 

Tested Daily

Click to Verify

About The Author

This post was written by Ultius.

• Writer Options
• Custom Writing
• Business Documents
• Support Desk
• +1-800-405-2972
• Submit bug report
• A+ BBB Rating!

Ultius is the trusted provider of content solutions for consumers around the world. Connect with great American writers and get 24/7 support.

© 2024 Ultius, Inc.

• Refund & Cancellation Policy

Free Money For College!

Yeah. You read that right —We're giving away free scholarship money! Our next drawing will be held soon.

Our next winner will receive over $500 in funds. Funds can be used for tuition, books, housing, and/or other school expenses. Apply today for your chance to win!

* We will never share your email with third party advertisers or send you spam.

** By providing my email address, I am consenting to reasonable communications from Ultius regarding the promotion.

Past winner

• Name Samantha M.
• From Pepperdine University '22
• Studies Psychology
• Won $2,000.00
• Award SEED Scholarship
• Awarded Sep. 5, 2018

Thanks for filling that out.

Check your inbox for an email about the scholarship and how to apply.

• Recently Active
• Top Discussions
• Best Content

By Industry

• Investment Banking
• Private Equity
• Hedge Funds
• Real Estate
• Venture Capital
• Asset Management
• Equity Research
• Investing, Markets Forum
• Business School
• Fashion Advice
• Technical Skills
• Economics Articles

Market Structure

Understanding perfect competition, monopoly, monopolistic competition, and oligopoly.

Kevin is currently the Head of Execution and a Vice President at Ion Pacific, a merchant bank and asset manager based Hong Kong that invests in the technology sector globally. Prior to joining Ion Pacific, Kevin was a Vice President at Accordion Partners, a consulting firm that works with management teams at portfolio companies of leading private equity firms.

Previously, he was an Associate in the Power, Energy, and Infrastructure Investment Banking group at  Lazard in New  York where he completed numerous  M&A  transactions and advised corporate clients on a range of financial and strategic issues. Kevin began his career in  corporate finance roles at  Enbridge Inc. in Canada. During his time at Enbridge Kevin worked across the finance function gaining experience in treasury, corporate planning, and investor relations.

Kevin holds an  MBA  from Harvard Business School, a Bachelor of Commerce Degree from Queen's University and is a  CFA  Charterholder.

Elliot currently works as a Private Equity Associate at Greenridge Investment Partners, a middle market fund based in Austin, TX. He was previously an Analyst in  Piper Jaffray 's Leveraged Finance group, working across all industry verticals on  LBOs , acquisition financings, refinancings, and recapitalizations. Prior to Piper Jaffray, he spent 2 years at  Citi  in the Leveraged Finance Credit Portfolio group focused on origination and ongoing credit monitoring of outstanding loans and was also a member of the Columbia recruiting committee for the Investment Banking Division for incoming summer and full-time analysts.

Elliot has a Bachelor of Arts in Business Management from Columbia University.

In simple terms, a market is any platform where buyers acquire what they want by exchanging goods, services, or any other item equivalent in value to the products they wish to purchase.

When you think of a market, you usually paint a picture where dozens of sellers have set up their stalls, and buyers flock to these stalls to purchase goods.

However, with globalization, markets have evolved significantly. You can buy anything from the comfort of your home! Markets are everywhere and even for the exchange of information.

The very meaning of a market changes when we observe it from the perspective of an individual customer and a company.

For a buyer, a market is a platform where he can acquire what he desires by offering something of an equivalent value. However, for a seller, it is the range of customers he caters to across all geographic regions.

For a firm to be able to answer the following questions, knowledge of market structure is necessary.

• Is our demand curve elastic or inelastic? What would be the impact on our revenue if we alter our prices?
• Is the market we operate in highly competitive? Who are our major competitors?
• Is there a price leader ? In other words, will all other firms follow this entity if they change their prices?

The major market structures are

Perfect competition

Monopolistic competition.

We will be looking at each of these structures in detail. But before we begin exploring them, I must introduce a few concepts. These concepts are essential to understanding each market form’s price determination process.

Market structure: What is total, marginal, and average revenue?

Understanding the idea behind total, marginal, and average revenue is not so difficult. Most of us probably apply this in our day-to-day purchases. The only difference is that we see these concepts from the “cost” spectrum.

The total revenue earned by an entity is simply the product of the number of units it sells and the price it charges per unit. From the cost perspective, the total cost is the product of the number of units you purchase and the price you pay per unit.

For example, if a firm sells 100,000 units of a product in a financial year and charges its buyers $20 for each unit, it has earned a total revenue of $2 million that year.

The average revenue (AR) is the quotient of the total revenue earned by a firm during a period and the number of units it has sold. In the above example, the firm has made an average revenue of $20 per unit.

Finally, the  marginal revenue (MR) is the revenue earned by selling one additional unit. For example, if the firm makes a revenue of $8000 by selling 800 units and a revenue of $8300 by selling 801 units, its marginal revenue is $300.

Can marginal revenue be negative? Absolutely. Take a look at this.

Total revenue by selling 100 units                                                                             300

Total revenue by selling 200 units                                                                             260

We can see that the marginal revenue has fallen by $40.

Conversely, a negative marginal revenue implies that total revenue is falling.

Another principle is that the marginal revenue curve is always steeper than the average revenue curve. Again, the reasoning is that a change in average revenue is spread out across all units, whereas the marginal revenue curve is focused on per-unit change.

Both the MR and AR curves are representative of the demand curve. This is because the demand curve follows the law of demand. According to the law of demand, all factors remain constant. Therefore, there is an inverse relationship between price and demand. For example, look at the diagram below.

We can see that the total revenue curve begins to fall right when the MR curve becomes negative. The total revenue is maximum when the marginal revenue is zero. 

Beyond this point, the firm will not earn additional revenue by selling more units. Furthermore, the average revenue curve cannot be negative (because it is impossible to charge a negative price for the product!).

Market equilibrium and determination of prices

I mentioned we would be studying price determination under different market scenarios. But, before that, let us give a general price determination overview. By now, you know that the price of a commodity is affected by demand and supply.

Have you ever gone to your local grocery store or an e-commerce website and been frustrated because your favorite item is “out of stock”? Or, have you started a business but were left with a lot of unsold stock?

We constantly come across demand-supply imbalances. Market equilibrium is when all demand is met, and all stock is sold. There is parity between demand and supply.

The figure below illustrates market equilibrium.

At point E, the market achieves equilibrium. This is the point at which demand equals supply. Notice that supply (S) keeps increasing as price increases, and demand (D) keeps declining. 

The firm would want to reduce the supply of commodities whose prices are falling as such commodities are deemed unprofitable. But, at the same time, customers would like to purchase more of these commodities to take advantage of reduced prices.

Therefore, below point “E,” demand is more than supply. Since many buyers cannot procure what they desire, they are willing to pay more to satisfy their needs. Therefore, we know that an increase in price causes an increase in supply. 

Therefore, production increases, demand is met, and equilibrium is restored.

Above point “E,” supply is more than demand. Producers are left with a lot of unsold stock. To increase sales, they reduce prices. A price reduction will increase demand and restore equilibrium.

Now that we’ve covered these concepts, let us explore the different market structures and how they operate.

Everything You Need To Master Financial Modeling

To Help You Thrive in the Most Prestigious Jobs on Wall Street.

To understand perfect competition, let us take two situations you might experience. First, you walk into a car dealership to buy your first car. The approach would be to thoroughly examine all the different brands and models and shortlist the best ones.

Once you’ve selected your vehicle, you begin  price negotiations  with the salesman. If you’re uncomfortable with the price offered, you could walk away and approach another dealership.

Do you do the same while you purchase groceries? No. This is because you know that market prices for items such as milk, eggs, and bread are standardized in your area. Therefore, you would only negotiate a little.

This differentiator is what constitutes perfect competition. However, there are some features unique to this market structure.

• The products you see on the shelves are homogeneous, i.e., hardly any differentiating factor. However, in the case of a car, companies could use many elements, such as design, performance, etc., to gain a competitive advantage.
• No single buyer or seller has complete control over the market. The number of players is so large that a single entity cannot influence the operation of the entire market.
• There is absolutely no room for a price war. This is because there is no price leader. Furthermore, because of homogeneity in products, buyers can switch to a competitor’s product if they are unsatisfied with the price.
• Since no single entity controls the market, it naturally follows that no firm can place entry barriers over the market. Players are free to enter and exit as they desire.

Now that we know what perfect competition means, let us look at the price determination scenario under perfect competition.

Price determination in a perfectly competitive market

We can explore the idea of price determination under any market structure from two spectrums - the firm’s and the industry’s equilibrium.

In the previous section, we discussed the equilibrium of the industry, which is achieved when demand equals supply.

Determining the equilibrium of a firm is a slightly different ball game. The firm’s equilibrium is the point at which it has maximized its profit. Notice that I used the term  “profit” and not “revenue.”  We need to account for costs too.

We know that businesses in a perfectly competitive market cannot be price leaders. They need to sell their products at a price determined by the market, i.e., the equilibrium price. At this price, they can sell any number of units.

If they sell above the equilibrium price, they will lose customers. But, on the other hand, it does not make sense to operate below the equilibrium price as the firm will lose revenue.

Take a hypothetical example of a firm that sells bread. The market price for bread is $5 per kg. This is the equilibrium price, i.e., the price at which all firms have to sell bread.

We can map an output-revenue chart for this firm under different output conditions.

Notice that the average and marginal revenue remain constant irrespective of output and are equal to the price. Observe the figure below.

We can see that the price determined by the industry is the price followed by individual businesses. This is because the price/AR curve/MR curve is also the firm’s demand curve. The demand curve happens to be perfectly inelastic.

This means that the demand will be unaffected by a change in price, and the firm can sell any number of units it wishes to.

For a moment, let us talk about marginal cost. First, the marginal cost keeps declining as the firm generates more output due to economies of scale. Then, after a point, the marginal cost begins to increase due to diseconomies of scale.

As we proceed, you will understand why I spoke about marginal cost. A company in a perfectly competitive market must satisfy two conditions to achieve equilibrium.

• The marginal revenue must equal the marginal cost. If MR>MC, the firm must produce more. If MR<MC, the firm is incurring losses and must stop production.
• We can see from the figure below that MR = MC at two points. The equilibrium point is the point at which MC cuts MR and begins to rise.

At the first output point, MC = MR, but since the cost is falling, the firm must produce more. If the firm goes beyond point “E,” it will incur losses since the cost rises. Point “E” is the point at which the firm attains equilibrium.

This is a market structure that we would rarely come across today. It is a market where a single seller has complete control over the product. As a result, no other player sells the product, or the sales of the other players are insignificant. 

In short, the seller with the largest market share is the king.

Like a perfectly competitive market, a monopoly has a few distinguishable features.

• Only one entity controls the supply of the product. What does this mean? Do you remember how we said that perfectly competitive firms follow the industry and do not have any individual power? In a monopoly, since all control is with one entity, there is no difference between a firm and an industry. 
• The firm that controls the market does so because it has established strong barriers which other firms cannot penetrate. We will explore what these entry barriers are in just a moment. 
• While perfectly competitive firms accept the market’s price, monopolistic firms are free to adjust their prices.

Let us now explore ways businesses create a strategic advantage that leads to a monopoly.

• Some monopolies have access to precious resources. These resources are in short supply, and having control over such resources enables these firms to control market supply.
• It is not necessary that the firm artificially create entry barriers. Businesses that have improved their production activities and expanded their operations benefit from economies of scale.
• At times, the product or service in question may be hazardous. As such, there might be legal restrictions against mass production, and the authorities assign a single entity complete control.
• A group of businesses may form a conglomerate and use their resources to prevent further competition. New entrants would find it difficult to establish a business in such an environment.
• Some businesses have been in the market for so long that they continue to enjoy complete control solely due to their goodwill over the years.

Price determination in a monopoly market

In a monopoly market, there is no distinction between the business and the industry. Since one entity controls the market, we can map its demand curve exactly how we do so for an industry.

At different price points, the monopolist firm will see different demand levels. The price charged is the average revenue, i.e., the revenue per unit. Therefore, we can say that the average revenue curve represents the price and demand curve.

Although a monopolist enjoys complete control, he cannot charge any price he wishes. Often, regulators cap the price he can charge. But even if there are no restrictions on price, customers will not be willing to purchase beyond a price point.

Therefore, a firm in a monopoly market faces a downward-sloping demand curve.

How does a firm in a monopoly attain equilibrium? Perfectly competitive firms accept the market price. They do not have any restrictions on production and can sell any units at the market price.

In a monopolistic market, the seller must reduce the price to increase sales as the demand curve slopes downward. To attain equilibrium, the monopolist must find the combination of price and output that maximizes profits.

The equilibrium conditions for a monopolistic firm are similar to those of a perfectly competitive firm.

The average cost and marginal cost curves are similar across all market structures. The marginal cost curve initially declines due to economies of scale but later rises due to diseconomies of scale.

First, the marginal revenue curve intersects the marginal cost curve at point “E.” This is the profit maximization point. Second, “EQ” is the equilibrium quantity. Finally, we get the equilibrium price when we extend this point to the demand curve.

Everything You Need To Master Algo Trading using Python

To Help You Thrive in One of the Most Future Proof Careers on Wall Street.

Let us journey back to the concept of perfect competition. First, we learned that since all the products are homogeneous, the buyer can switch to a competitor’s offering. But, realistically, perfect competition is only a theoretical concept.

Take the example of milk. On the surface, it seems that milk is a homogeneous product. After all, how much can you differentiate milk?

However, businesses have developed many innovative offerings to differentiate themselves from their competitors. Such competition has led to the production of skim milk, organic milk, lactose-free milk, raw milk, and tons of other variants.

Price wars are seldom healthy. While businesses in a perfectly competitive market engage in price wars, a monopolistic competition environment is one where sellers attempt to make their products stand out.

This differentiating factor is why the market structure has been termed “monopolistic” competition. It is an amalgamation of both perfect competition and monopoly.

Let us look at some of the features of monopolistic competition.

• A perfectly competitive firm’s demand curve is elastic because the products are perfect substitutes. However, products in monopolistic competition are close substitutes, i.e., they have differentiating factors.
• Like the perfect competition, there are hardly any barriers to entry and exit . New players come and go as they please.
• The firm gains a competitive advantage through innovation rather than price wars.

Price determination under monopolistic competition

We established that monopolistic competition shows a relatively elastic demand curve because of product differentiation and close substitutes. 

The demand curve’s steepness measures the demand elasticity: the flatter the curve, the more elastic the demand. 

The elasticity of demand measures the magnitude of change in demand due to a price change. The more elastic the demand, the more the market responds to a change in price.

In a monopolistic competition scenario, the degree of differentiation will determine the elasticity of demand. Therefore, the more the product is differentiated, the greater the competitive advantage and the steeper the demand curve.

It is important to note that firms under monopolistic competition cannot earn  supernormal profits . Normal profit is a scenario where revenues are only sufficient to meet costs.

The reasoning is that many other firms would want to enter the industry if businesses generate revenues over and above their costs. Due to increasing competition, profits begin to fall, and the firm earns a normal profit.

Conversely, if enterprises incur losses, many players exit, and the market returns to earning normal profits.

The equilibrium of a firm in monopolistic competition is achieved by maximizing profits. Yet again, the conditions for equilibrium are the same as seen in the previous market structures.

We can see that the equilibrium point, i.e., the point at which the MR curve cuts the MC curve, is “E.” EV is the target output, and OP is the target price at which the firm operates.

Notice that the profit, i.e., the area from point “P” to point “E,” is the difference between the average revenue and average cost.

Remember how we said the marginal revenue curve is bound to fall and rise faster than the average revenue curve? This is because a change in the cost of producing one unit is more significant than the change in total per unit cost.

Therefore, when the cost curves are falling ( due to economies of scale ), the marginal cost curve falls faster and is below the average cost curve. Conversely, when the cost curves increase, the MC curve lies above the AC curve.

Let us explore the final market structure, i.e., oligopoly. An oligopoly is a more realistic market structure. We could describe oligopoly as a variation of monopoly.

In monopoly, we saw how a few market leaders firms form a conglomerate to create entry barriers for new entrants. Such a congregation is known as an oligopoly. 

The oligopolistic approach has a few features. These are discussed below.

• There are very few firms that collectively control the market. These firms create entry barriers on the strength of their market share .
• Unlike perfect competition, where no individual firm can affect the market’s performance, each player in an oligopoly can exercise influence over the market. Any move by one business will face similar retaliation from all other businesses.
• Like under monopolistic competition, players in an oligopoly actively avoid price wars. They compete through product differentiation and innovative ventures.
• Usually, firms that form a conglomerate appoint a leader. This leader guides the group’s actions and helps provide an operational framework. All businesses draft their policies by considering the movements of the leader.

We will conclude by looking at the price determination and equilibrium scenario under an oligopolistic market .

Price determination in an oligopolistic market

It is neither possible nor feasible for businesses in an oligopolistic environment to engage in price wars. As soon as competitors notice that a rival firm has altered its prices, they would also bring their prices down.

A unique feature of oligopoly is that it is challenging to create a demand curve for an individual firm because of rival responses. However, many strategies have been developed for price determination through experiential learning.

As discussed, one of the most common approaches is appointing a price leader. The price leader looks at industry trends and determines a price-output range to maximize profits. The other firms simply follow.

Sometimes, the businesses jointly agree to work in tandem and form an organization that serves the interests of all its members. As a result, all benefits arising from the conglomeration are shared equally or as agreed.

The most common example of such a conglomeration is the  Organization of the Petroleum Exporting Countries (OPEC) . 

The final approach is to ignore the collusion and act as independent entities completely. Each firm is responsible for its costs, profits, and losses. We can then draw up a demand curve for each firm.

Paul M. Sweezy  developed a theory depicting an oligopolistic firm’s demand curve. He opined that the demand curve of an oligopolistic firm is kinked, as shown below.

Notice that the demand curve becomes steeper after a point. This price point is the price that is predominant in the market. Below this point, demand is relatively inelastic, i.e., it does not respond much to price changes.

Key Takeaways

• There are four market structures - Perfect competition, monopoly, monopolistic competition, and oligopoly.
• In a perfectly competitive market, products are homogeneous, there are many sellers, the market determines the price, and each seller can sell as much output as desired at this price.
• A monopoly is a market where only one entity controls the working of the market. He is not a price taker but fixes the market’s price. There is no distinction between the firm and the industry.
• Monopolistic competition is also called imperfect competition. There are many sellers, just as in perfect competition, but competition is based on product differentiation rather than price.
• An oligopoly is a market wherein the major players form a conglomerate. This union is to prevent competition and create entry barriers.

Everything You Need To Master Financial Statement Modeling

To Help you Thrive in the Most Prestigious Jobs on Wall Street.

Researched and authored by Sathyanarayana Sairam | LinkedIn

Reviewed and edited by Parul Gupta | LinkedIn

Free Resources

To continue learning and advancing your career, check out these additional helpful  WSO  resources:

• Economies of Scale
• Financial Economics
• Macroeconomics

Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.

or Want to Sign up with your social account?

Table of Contents

What is market structure, types of market structures, monopolistic markets characteristics, oligopoly characteristics, perfectly competitive market characteristics, final thought, market structure: definition, types, features and fluctuations.

You all must have read about the immense scope of markets in economics textbooks. But what does market structure look like in the real world? Market structure can be categorized based on the competition levels and the nature of markets. Let’s look into the details of market structure in this article. 

Market structure refers to the way that various industries are classified and differentiated in accordance with their degree and nature of competition for products and services. It consists of four types: perfect competition, oligopolistic markets, monopolistic markets, and monopolistic competition.

According to economic theory, market structure describes how firms are differentiated and categorized by the types of products they sell and how those items influence their operations. A market structure helps us to understand what differentiates markets from one another.

In economics, market structure is the number of firms producing identical products which are homogeneous. The types of market structures include the following:

• Monopolistic competition, also called competitive market, where there is a large number of firms, each having a small proportion of the market share and slightly differentiated products.
• Oligopoly, in which a market is by a small number of firms that together control the majority of the market share.
• Duopoly, a special case of an oligopoly with two firms.
• Monopsony, when there is only one buyer in a market.
• Oligopsony, a market in which many sellers can be present but meet only a few buyers.
• Monopoly, in which there is only one provider of a product or service.
• Natural monopoly, a monopoly in which economies of scale cause efficiency to increase continuously with the size of the firm. A firm is a natural monopoly if it is able to serve the entire market demand at a lower cost than any combination of two or more smaller, more specialized firms.
• Perfect competition, a theoretical market structure that features no barriers to entry, an unlimited number of producers and consumers, and a perfectly elastic demand curve.

Become a Business and Leadership Professional

• Top 10 skills in demand Business Analysis As A Skill In 2020
• 14% Growth in Jobs Of Business Analysis Profile By 2028

Business Analyst

• Industry-recognized certifications from IBM and Simplilearn
• Masterclasses from IBM experts

Post Graduate Program in Digital Marketing

• Joint Purdue-Simplilearn Digital Marketer Certificate
• Become eligible to be part of the Purdue University Alumni Association

Here's what learners are saying regarding our programs:

Assistant Consultant at Tata Consultancy Services , Tata Consultancy Services

My experience with Simplilearn has been great till now. They have good materials to start with, and a wide range of courses. I have signed up for two courses with Simplilearn over the past 6 months, Data Scientist and Agile and Scrum. My experience with both is good. One unique feature I liked about Simplilearn is that they give pre-requisites that you should complete, before a live class, so that you go there fully prepared. Secondly, there support staff is superb. I believe there are two teams, to cater to the Indian and US time zones. Simplilearn gives you the most methodical and easy way to up-skill yourself. Also, when you compare the data analytics courses across the market that offer web-based tutorials, Simplilearn, scores over the rest in my opinion. Great job, Simplilearn!

Allan Joaquin

Senior copywriter , ami group.

Completing the PGP in Digital Marketing course and gaining knowledge in the field allowed me to service new clients who needed consultancy on digital marketing strategies. I was also able to increase my revenue by 50%.

The imperfectly competitive structure is quite identical to the realistic market conditions where some monopolistic competitors, monopolists, oligopolists and duopolists exist and dominate the market conditions. The elements of Market Structure include the number and size distribution of firms, entry conditions, and the extent of differentiation.

These somewhat abstract concerns tend to determine some but not all details of a specific concrete market system where buyers and sellers actually meet and commit to trade. Competition is useful because it reveals actual customer demand and induces the seller (operator) to provide service quality levels and price levels that buyers (customers) want, typically subject to the seller’s financial need to cover its costs. In other words, competition can align the seller’s interests with the buyer’s interests and can cause the seller to reveal his true costs and other private information. In the absence of perfect competition, three basic approaches can be adopted to deal with problems related to the control of market power and an asymmetry between the government and the operator with respect to objectives and information: (a) subjecting the operator to competitive pressures, (b) gathering information on the operator and the market, and (c) applying incentive regulation.

Monopolistically competitive markets have the following characteristics:

• There are many producers and many consumers in the market, and no business has total control over the market price.
• Consumers perceive that there are non-price differences among the competitors' products.
• There are few barriers to entry and exit.
• Producers have a degree of control over price.

The long-run characteristics of a monopolistically competitive market are almost the same as a perfectly competitive market. Two differences between the two are that monopolistic competition produces heterogeneous products and that monopolistic competition involves a great deal of non-price competition, which is based on subtle product differentiation. A firm making profits in the short run will nonetheless only break even in the long run because demand will decrease and average total cost will increase. This means in the long run, a monopolistically competitive firm will make zero economic profit. This illustrates the amount of influence the firm has over the market; because of brand loyalty, it can raise its prices without losing all of its customers. This means that an individual firm's demand curve is downward sloping, in contrast to perfect competition, which has a perfectly elastic demand schedule.

• Profit maximization conditions: An oligopoly maximizes profits by producing where marginal revenue equals marginal costs.
• Ability to set price: Oligopolies are price setters rather than price takers.
• Entry and exit: Barriers to entry are high. The most important barriers are economies of scale, patents, access to expensive and complex technology, and strategic actions by incumbent firms designed to discourage or destroy nascent firms. Additional sources of barriers to entry often result from government regulation favoring existing firms making it difficult for new firms to enter the market.
• Number of firms: "Few" – a "handful" of sellers. There are so few firms that the actions of one firm can influence the actions of the other firms.
• Long run profits: Oligopolies can retain long run abnormal profits. High barriers of entry prevent sideline firms from entering the market to capture excess profits.
• Product differentiation: Product may be homogeneous (steel) or differentiated (automobiles).
• Perfect knowledge: Assumptions about perfect knowledge vary but the knowledge of various economic factors can be generally described as selective. Oligopolies have perfect knowledge of their own cost and demand functions but their inter-firm information may be incomplete. Buyers have only imperfect knowledge as to price, cost and product quality.
• Interdependence: The distinctive feature of an oligopoly is interdependence. Oligopolies are typically composed of a few large firms. Each firm is so large that its actions affect market conditions. Therefore the competing firms will be aware of a firm's market actions and will respond appropriately. This means that in contemplating a market action, a firm must take into consideration the possible reactions of all competing firms and the firm's countermoves. It is very much like a game of chess or pool in which a player must anticipate a whole sequence of moves and countermoves in determining how to achieve his or her objectives. For example, an oligopoly considering a price reduction may wish to estimate the likelihood that competing firms would also lower their prices and possibly trigger a ruinous price war. Or if the firm is considering a price increase, it may want to know whether other firms will also increase prices or hold existing prices constant. This high degree of interdependence and need to be aware of what other firms are doing or might do is to be contrasted with lack of interdependence in other market structures. In a perfectly competitive (PC) market there is zero interdependence because no firm is large enough to affect market price. All firms in a PC market are price takers, as current market selling price can be followed predictably to maximize short-term profits. In a monopoly, there are no competitors to be concerned about. In a monopolistically-competitive market, each firm's effects on market conditions is so negligible as to be safely ignored by competitors.
• Non-Price Competition: Oligopolies tend to compete on terms other than price. Loyalty schemes, advertisement, and product differentiation are all examples of non-price competition
• Infinite buyers and sellers – An infinite number of consumers with the willingness and ability to buy the product at a certain price, and infinite producers with the willingness and ability to supply the product at a certain price.
• Zero entry and exit barriers – A lack of entry and exit barriers makes it extremely easy to enter or exit a perfectly competitive market.
• Perfect factor mobility – In the long run factors of production are perfectly mobile, allowing free long term adjustments to changing market conditions.
• Perfect information - All consumers and producers are assumed to have perfect knowledge of price, utility, quality and production methods of products.
• Zero transaction costs - Buyers and sellers do not incur costs in making an exchange of goods in a perfectly competitive market.
• Profit maximizing - Firms are assumed to sell where marginal costs meet marginal revenue, where the most profit is generated.
• Homogenous products - The qualities and characteristics of a market good or service do not vary between different suppliers.
• Non-increasing returns to scale - The lack of increasing returns to scale (or economies of scale) ensures that there will always be a sufficient number of firms in the industry.
• Property rights - Well defined property rights determine what may be sold, as well as what rights are conferred on the buyer.

The correct sequence of the market structure from most to least competitive is perfect competition, imperfect competition, oligopoly and pure monopoly. The main criteria by which one can distinguish between different market structures are the number and size of producers and consumers in the market, the type of goods and services being traded and the degree to which information can flow freely.

If you have good ideas about different markets and their specific characteristics, making a career in Marketing will be a good option for you. Become a Digital Marketing expert with the help of the professional certificate , offered by IMT Ghaziabad in collaboration with Simplilearn. Get a holistic understanding of the digital marketing field by exploring topics like SEO , Social Media , PPC , Web Analytics , and Marketing Analytics . Sign-up today and start learning! 

Get Free Certifications with free video courses

Business and Leadership

Business Analysis Basics

Digital Marketing

Introduction to Digital Marketing Fundamentals Course

Learn from Industry Experts with free Masterclasses

Finance management.

Financial Modeling statistical functions in Excel

Career Information Session: Find Out How to Become a Business Analyst with IIT Roorkee

Recommended Reads

Free eBook: Agile and Scrum Salary Report

A Comprehensive Guide on How to Do Market Research

Implementing Stacks in Data Structures

Data Scientist Resume Guide: The Ultimate Recipe for a Winning Resume

Structure in C

A Comprehensive Look at Queue in Data Structure

Get Affiliated Certifications with Live Class programs

• PMP, PMI, PMBOK, CAPM, PgMP, PfMP, ACP, PBA, RMP, SP, and OPM3 are registered marks of the Project Management Institute, Inc.

• Liberty Fund
• Adam Smith Works
• Law & Liberty
• Browse by Author
• Browse by Topic
• Browse by Date
• Search EconLog
• Latest Episodes
• Browse by Guest
• Browse by Category
• Browse Extras
• Search EconTalk
• Latest Articles
• Liberty Classics
• Search Articles
• Books by Date
• Books by Author
• Search Books
• Browse by Title
• Biographies
• Search Encyclopedia
• #ECONLIBREADS
• College Topics
• High School Topics
• Subscribe to QuickPicks
• Search Guides
• Search Videos
• Library of Law & Liberty
• Home   /  

ECONLIB Guides

Competition and Market Structures

Definitions and Basics

Competition , from the Concise Encyclopedia of Economics

“Competition,” wrote Samuel Johnson, “is the act of endeavoring to gain what another endeavors to gain at the same time.” We are all familiar with competition—from childhood games, from sporting contests, from trying to get ahead in our jobs. But our firsthand familiarity does not tell us how vitally important competition is to the study of economic life. Competition for scarce resources is the core concept around which all modern economics is built….

What are Market Structures? An Economics Topic Detail, by Arnold Kling

Market structures, or industrial organization, describe the extent to which markets are competitive. At one extreme, pure monopoly means that there is only one firm in an industry. At the other extreme, economists describe a theoretical possibility termed perfect competition. In between are the market structures found most often in the real world, which are oligopoly and monopolistic competition.

Competition and Market Structure : A Video and Quiz from EconEdLink

Monopoly , from the Concise Encyclopedia of Economics

A monopoly is an enterprise that is the only seller of a good or service. In the absence of government intervention, a monopoly is free to set any price it chooses and will usually set the price that yields the largest possible profit. Just being a monopoly need not make an enterprise more profitable than other enterprises that face competition: the market may be so small that it barely supports one enterprise. But if the monopoly is in fact more profitable than competitive enterprises, economists expect that other entrepreneurs will enter the business to capture some of the higher returns. If enough rivals enter, their competition will drive prices down and eliminate monopoly power…. The main kind of monopoly that is both persistent and not caused by the government is what economists call a “natural” monopoly. A natural monopoly comes about due to economies of scale—that is, due to unit costs that fall as a firm’s production increases. When economies of scale are extensive relative to the size of the market, one firm can produce the industry’s whole output at a lower unit cost than two or more firms could. The reason is that multiple firms cannot fully exploit these economies of scale. Many economists believe that the distribution of electric power (but not the production of it) is an example of a natural monopoly. The economies of scale exist because another firm that entered would need to duplicate existing power lines, whereas if only one firm existed, this duplication would not be necessary. And one firm that serves everyone would have a lower cost per customer than two or more firms.

The Costs and Benefits of Monopoly , at Marginal Revolution University

Timothy Taylor, The Blurry Line Between Competition and Cooperation , Econlib, February 2015.

What is the opposite of “competition”? If you fear that this is a trick question and run off to check a synonym/antonym dictionary, you will find an answer that probably came to mind in the first place: “cooperation.” Indeed, many people view economics as morally suspect because they perceive economics as emphasizing competition, rather than the arguably more virtuous approach of cooperation.

Industrial Concentration , from the Concise Encyclopedia of Economics

Industrial concentration occurs when a small number of companies sell a large percentage of an industry’s product. The most widely used measure of concentration is the so-called four-firm concentration ratio, which is the percentage of the industry’s product sold by the four largest producers. If, for example, four firms each sell 10 percent of an industry’s product, the four-firm concentration ratio for that industry is 40 percent….

In the News and Examples

Teaching Market Structures with a Competitive Gum Marke t, from EconEd at the St. Louis Fed

In this lesson, students participate in an activity that demonstrates a key economic idea: The level of competition in an industry is a major determinant of product prices. Students are placed in groups that replicate four competitive conditions—perfect competition, monopoly, competitive oligopoly, and collusive oligopoly. Students act as firms in each industry competing to sell their product to the teacher (acting as a consumer).

In Defense of Apple , by Richard McKenzie at Econlib, July 2012.

Richard McKenzie examines the 2012 antitrust case against Apple, providing a defense of the tech company based on antitrust enforcers misunderstanding of monopoly theory.

Antitrust , from the Concise Encyclopedia of Economics

Before 1890 the only “antitrust” law was the common law. Contracts that allegedly restrained trade (price-fixing agreements, for example) often were not legally enforceable, but such contracts did not subject the parties to any legal sanctions. Nor were monopolies generally illegal. Economists generally believe that monopolies and other restraints of trade are bad because they usually have the effect of reducing total output and, therefore, aggregate economic welfare (see Monopoly). Indeed, the term “restraint” of trade indicates exactly why economists dislike monopolies and cartels. But the law itself did not penalize monopolies. The Sherman Act of 1890 changed all that. It outlawed cartelization (every “contract, combination… or conspiracy” that was “in restraint of trade”) and monopolization (including attempts to monopolize)….

Don Boudreaux on Market Failure, Government Failure and the Economics of Antitrust Regulation . EconTalk podcast episode, October 1, 2007.

Don Boudreaux of George Mason University talks with EconTalk host Russ Roberts about when market failure can be improved by government intervention. After discussing the evolution of economic thinking about externalities and public goods, the conversation turns to the case for government’s role in promoting competition via antitrust regulation. Boudreaux argues that the origins of antitrust had nothing to do with protecting consumers from greedy monopolists. The source of political demand for antitrust regulation came from competitors looking for relief from more successful rivals.

A Little History: Primary Sources and References

Of Competition and Custom , by John Stuart Mill . Book II, Chap. 4 from Principles of Political Economy

Under the rule of individual property, the division of the produce is the result of two determining agencies: Competition, and Custom. It is important to ascertain the amount of influence which belongs to each of these causes, and in what manner the operation of one is modified by the other. Political economists generally, and English political economists above others, have been accustomed to lay almost exclusive stress upon the first of these agencies; to exaggerate the effect of competition, and to take into little account the other and conflicting principle. They are apt to express themselves as if they thought that competition actually does, in all cases, whatever it can be shown to be the tendency of competition to do. This is partly intelligible, if we consider that only through the principle of competition has political economy any pretension to the character of a science….

Steven Horwitz, Competition and Entrepreneurship : The Fountainhead of the Contemporary Austrian School , Econlib, December 2020.

One way of seeing the contribution of Competition and Entrepreneurship , and Kirzner’s work on entrepreneurship more generally, is that he provided a Misesian solution to a Hayekian problem…The Hayekian problem was how to explain the process of social learning that led to the coordination that characterized equilibrium. What ensured that the tendency toward equilibrium would be effective? The answer Kirzner offered was to take from Mises the idea of the entrepreneurial element of human action- the idea that we are not just maximizers but active agents who do not take our means-ends frameworks as given, and to make entrepreneurship the prime mover of the market process. Kirzner argued that the process of plan coordination is set in motion by entrepreneurial alertness to hitherto unseen opportunities, the exploiting of which constitutes the competitive market process.

Garret Edwards, Competition as a Discovery Procedure: Smith, Hayek, and Leoni , AdamSmithWorks, May 19, 2021.

‘Competition is thus, like experimentation in science, first and foremost a discovery procedure. […] Competition as a discovery procedure must rely on the self-interest of the producers, that is it must allow them to use their knowledge for their purposes, because nobody else possesses the information on which they must base their decision.’ But what does that really tell us about competition? How is competition relevant in discovering new ways to improve our everyday lives? Is it possible that competition ends up being useful for entrepreneurs to innovate even when government regulations get in the way?

Non-market activity within the family: Gary Becker , biography from the Concise Encyclopedia of Economics

One of Becker’s insights was that a major cost of investing in education is one’s time. Possibly that insight led him to his next major area, the study of the allocation of time within a family. Applying the economist’s concept of opportunity cost, Becker showed that as market wages rose, the cost to married women of staying home would rise. They would want to work outside the home and economize on household tasks by buying more appliances and fast food….

Advanced Resources

Shedding Light on Market Power , by Morgan Rose at Econlib.

How should government react to firms with too much supposed market power? How ought barriers to entry be dealt with?

Why Predatory Pricing is Highly Unlikely , by David Henderson at Econlib, May 2017.

A widely held belief is that large firms with some market power can use their profits generated in particular markets to cut prices below costs in another market and drive out their competitors. Then, according to this belief, once the competitors are driven out, the large firms can raise their prices in that market and collect higher-than-competitive prices. There are two problems with this view. First, it is logically deficient. Second, there is little evidence to support it.

Is Market Failure a Sufficient Condition for Government Intervention? , by Art Carden and Steven Horwitz at Econlib, April 2013.

Externality problems are market ‘failures’ only in comparison to the perfectly competitive model’s equilibrium. In other words, the ‘failure’ here is not that markets ‘do not work’ in practice, but that they fail to live up to a blackboard ideal.

Related Topics

Markets and Prices

Roles of Government

Economic Analysis of Market Structure

Checked : Grayson N. , Curtis H.

Latest Update 21 Jan, 2024

12 min read

Table of content

Market structure

The features of a market structure, perfect competition, contestable market.

Major economic activities that lead to growth and development are defined by the strength of the markets that operate within it. This is because markets have the biggest role to play in these economies. When a single firm makes a decision, it may not have much impact on the general economy. But when many companies within a market setup make a decision, for instance, to stop production, the whole market faces the impact, which extends to the whole economy.

Consider the events that led to the 2008-2009 financial crisis, for instance. The US economy has been booming over several years before this event. Therefore, the economic bubble seemed like a good idea for investors to take loans and take their investments to other levels, especially in the housing industry. Financial institutions were so confident in their clients that they flexed the requirements for taking loans. Many of them did not do a proper background check to ascertain borrowers' ability to repay the loans. The economy was at its peak, and many indicators showed it would continue on an upward scale for another long period. Until the worst happened and house prices dropped significantly. The banks that had taken these properties as collateral were unable to sell them, let alone give out at a price that would help recover the lent money.

And this was the beginning of trouble for many financial institutions. With things getting worse by the day, some failed to recover completely, which forced them to announce a state of bankruptcy.   Financial markets   were the worse hit by the situation, and even when some monetary policies were applied to salvage the economy, many of them were unable to recover. This was defined as the worse economic crisis faced within financial markets.

As we already know, financial markets are among the biggest contributors to the general economy. For instance, many banks in the developing world lend money to small scale businesses, helping them pick up the pace and grow at a pace they would not have expected. It is also the financial markets that determine how much money is given into the economy or how much is withdrawn. When interest rates go high, the financial markets are there to ensure borrowers are taking money they can pay back, and when the rates go down, the same markets give out money at a controlled rate to ensure everything flows smoothly.

Economic growth and development have been relying a lot on the events taking place within financial markets. And when we talk about financial markets, we are referring to all financial intermediaries and money lending institutions, including insurance companies, which play a crucial role in any given economy.

When the financial markets fell, the effect spread fast into other sectors of the world economy. It became hard to import and export different products as inflation rates rose, leading to higher or lower r exchange rates went through the roof. Businesses that relied on borrowed resources from banks were unable to access these resources, making some to close some branches. And those that defaulted in their loans were forced to sell off some of their assets to cover their premiums. Households went into a state of panic and started withdrawing money from banks at a high rate. Since some of the banks had already shown signs of struggle, these mass withdrawals further crippled the operations, making it even hard to recover.

When reports came about the crisis, the main headlines talked about an economic crisis and not much about banks' falling. In other words, the fall of these markets was viewed from their effects on the general economy. When governments came up with fiscal and monetary policies to salvage the situation, they also talked about saving the economy, even though many steps were towards rescuing major financial intermediaries.

This shows just how important markets are in economies. They begin with firms operating under similar rules, or selling the same type of products, growing into a large community of firms. But that is not all. In the market, there must be producers and consumers. In any case, consumers are the households who are the final users of these products. The relationship between these two players creates the perfection of the market.

All markets are structured in a specific way, with laws and policies that guide firms' operations with the system. The best way to define market structure is, it's the organizational and other characteristics of a market. There are different features that make markets unique of similar, mostly depending on the goods and services linked to that market. When a company wants to enter or exit a market, they have to follow a specific set of guiding rules that tell them what to do. Companies don't just operate as they want in any market. For instance, when it comes to setting prices, come markets are defined as price givers, and others as price takers. It is all about the organizational features of those markets.

Consider financial markets, for instance. It is the Central Banks that determine how much money a bank can hold at any given time, and they also determine the interest rates to be charged on borrowed money. In this case, Central Banks become the regulatory body that sets the standards for operating in financial markets. When the economy is booming, they raise interest rates to discourage excessive borrowing and shield banks from the aftermath. And when the economy is low, interest rates are reduced to encourage borrowing.

There is only an example of what market structure is, and an idea of what happens within them. There are many other characteristics that make up proper market structures. But the main ones concern features that affect the nature of competition and pricing. Many people put too much emphasis simply on the market share of the existing firms in an industry – which is also a good approach to market structure, but there is a lot more than needs to be carefully considered.

Traditionally, important features of a market structure include:

• The number of companies. As stated above, we are looking at market structure in terms of competition and pricing. In this case, a complete market is expected to carry a specific number of firms, including the scale and extent of foreign competition. As more companies join a market, the competition level increases, making it even easier to describe the market. But this also means increased competition, which affects even the pricing models.
• The markets share of the largest companies. In a perfect market, each firm operates on the same level, and there is no big or small. But such markets are only theoretical. Imperfect competition is major in many economies, especially developed ones. Hence, market structures are defined by these firms' market capitalization, who are also the main decision-makers. This is measured mainly by the concentration ratio – that is, how popular the firms' products are with different consumers.
• The nature of costs. The cost of production is among the main determining factors for pricing, and essentially the company's growth. In this case, the costs include the potential for firms to exploit economies of scale and also the presence of sunk costs that affect the contestability of markets in the long run.
• The extent to which the industry is integrated vertically. Vertical integration is the main feature for explaining the process by which different stages in production and distribution of a product are under ownership and control of one enterprise. One example of such integration is the oil markets in which large firms own the rights to extract from oil fields. They also run a fleet of tankers, operate refineries, and control the sales at their own filling stations. In such a case, it is very hard for new firms to join the industry since a few have already taken control of everything.
• Product differentiation degree. Even though some firms may be producing the same products, they come with different degrees of difference, which affect cross-price elasticity of demand. For instance, some manufactures may be making low-quality products, whereas others only make the highest quality.
• The structure of buyers in a market. It most industries, buyers are structured in different forms. For instance, a buyer will make more informed decisions if they have all the information they need about the manufacturer and the general industry. This is where the aspect of the brand loyalty comes in.
• The turnover buyers. This feature is also called 'market churn,' and it means how many product users are ready to switch their supplier over a specific period where there is a change in the market conditions. The degree of customer turnover is determined by the extent of consumer or brand loyalty. It is also impacted by the influence of persuasive advertising and the market. Many loyal customers will find it very hard to change unless the firm stops advertising, and the competition becomes very aggressive in this.

The type of competition in them defines market structures. And there are four main characteristics that determine these structures. They include:

A perfect competition market is one that has many firms selling homogenous products. The firms are price takers since price competition does not exist. There is no big or small company, and there is not a better or worse product. All consumers have perfect information about the products, and they will buy with a proper understanding of what they need.

Also, firms gain supernormal short-run profit but not supernormal long-run profit. All conditions are favorable for the joining and exit of other firms. In perfect competition, firms do not set prices since they don't have much control over this and their customers' consumption needs.

The best thing about the type of markets is that firms don't have to worry about too much marketing. Consumers already know the products, and the market is open for anyone who wishes to join. There are no barriers to entry. Most importantly, such industries are defined by high-economic output.

Perfect competition is, however, only in the books. We live in a world of imperfect information, which creates imperfect competition. Firms with access to more information are less willing to share, applying it only to the advantage.

We Will Write an Essay for You Quickly

This is another feature of market structure that defines an industry with few dominant firms. The products are differentiated, and there are many barriers to entry. Firms are established to gain supernormal short-term and long-run profits.

The firms are price makers, though they feature independent behavior. Non-price competition is very crucial in these markets, and the economic value is low allocative. These markets are the most common in modern economies.

A monopoly, as the name suggests, is a market that has one firm with pure monopoly. An effective duopoly is also common in many cases. Product type is limited since there is only one firm producing and supply the goods. Supernormal short-run and long-run profits are very high.

The firms are price makers, though the demand curve and possible regulations constrain them. There is a non-price competition, though not as important as in oligopoly markets.

These are markets that also have many firms. The products are differentiated, and there are low entry and exit barriers. They gain any profit possible in terms of supernormal short-run and long-run profits. The pricing power fall with the firms, who are the price maker – though the real power and potential competition limit pricing power. Non-pricing competition is very important in these markets.

In economics, markets are categorized based on the structure of the industry serving the market. On the other hand, the industry structure is categorized based on market variables that, many believed, determine how far the characteristics of competition go.

The four market structures explained above from an abstract (generic) in the characterization of a type of I real industry. Market structure affects the outcomes of that market due to its impact on the motivations, opportunities, and economic actors' decisions taking part in the market. Economic market structure analysis aims at setting apart these effects as they try to explain and predict market outcomes.

Looking for a Skilled Essay Writer?

• University of Nottigharm Bachelor of Applied Science

No reviews yet, be the first to write your comment

Write your review

Thanks for review.

It will be published after moderation

Latest News

What happens in the brain when learning?

10 min read

20 Jan, 2024

How Relativism Promotes Pluralism and Tolerance

Everything you need to know about short-term memory

Edinburgh Research Archive

•   ERA Home
• Economics, School of
• Economics thesis and dissertation collection

Essays on market structure

Collections.

Home — Essay Samples — Business — Amazon — Market Structure Analysis – Amazon

Market Structure Analysis – Amazon

• Categories: Amazon

About this sample

Words: 382 |

Published: Jan 29, 2024

Words: 382 | Page: 1 | 2 min read

Table of contents

Overview of amazon's market structure, dominance of amazon in the e-commerce market, oligopolistic aspects of amazon's market structure, analysis of amazon's pricing strategy, antitrust and regulatory concerns.

• References> Evans, D. S. (2018). The antitrust economics of two-sided markets. Competition Policy International. Khan, L., & Vahe, R. (2016). Market power and inequality: The antitrust counterrevolution and its discontents. Harvard Law Review. Picker, R. (2017). Antitrust, competition policy, and inequality. The Antitrust Bulletin. Stucke, M. E., & Grunes, A. P. (2016). Big data and competition policy. Oxford University Press.

References> Evans, D. S. (2018). The antitrust economics of two-sided markets. Competition Policy International. Khan, L., & Vahe, R. (2016). Market power and inequality: The antitrust counterrevolution and its discontents. Harvard Law Review. Picker, R. (2017). Antitrust, competition policy, and inequality. The Antitrust Bulletin. Stucke, M. E., & Grunes, A. P. (2016). Big data and competition policy. Oxford University Press.

Cite this Essay

Let us write you an essay from scratch

• 450+ experts on 30 subjects ready to help
• Custom essay delivered in as few as 3 hours

Get high-quality help

Dr. Heisenberg

Verified writer

• Expert in: Business

+ 120 experts online

By clicking “Check Writers’ Offers”, you agree to our terms of service and privacy policy . We’ll occasionally send you promo and account related email

No need to pay just yet!

Related Essays

1 pages / 626 words

2 pages / 878 words

2 pages / 1113 words

2 pages / 1161 words

Remember! This is just a sample.

You can get your custom paper by one of our expert writers.

121 writers online

Still can’t find what you need?

Browse our vast selection of original essay samples, each expertly formatted and styled

Related Essays on Amazon

Amazon, as a global e-commerce giant, has been the subject of scrutiny regarding its treatment of workers. The article "Unethical Working Conditions and Monitoring at Amazon" delves into the controversial labor practices and [...]

Is Amazon a monopoly? This question has ignited fervent debates and discussions in recent years. The rise of the e-commerce giant, Amazon, has transformed the retail landscape and raised concerns about its market dominance and [...]

Amazon, the global retail and technology giant, has made significant impacts on the global market with its expansive operations and innovative business strategies. However, amidst its success, Amazon has faced scrutiny for its [...]

The Great Barrier Reef, located off the coast of Queensland, Australia, is the world's largest coral reef system. It is home to a vast array of marine life and plays a crucial role in the global ecosystem. However, in recent [...]

The Amazon Rainforest extends over South America from the Atlantic Ocean in the east to the Andes Mountains in the west. It is home to the myriad species of fauna and flora, containing 50 percent of the world's biodiversity. [...]

When you are registering for Amazon Prime make sure to select the Amazon Family membership. It’ll save you 20% off of diapers subscriptions and give you discounts on additional family items. Subscribe to all of your diapers, [...]

Related Topics

By clicking “Send”, you agree to our Terms of service and Privacy statement . We will occasionally send you account related emails.

Where do you want us to send this sample?

By clicking “Continue”, you agree to our terms of service and privacy policy.

Be careful. This essay is not unique

This essay was donated by a student and is likely to have been used and submitted before

Download this Sample

Free samples may contain mistakes and not unique parts

Sorry, we could not paraphrase this essay. Our professional writers can rewrite it and get you a unique paper.

Please check your inbox.

We can write you a custom essay that will follow your exact instructions and meet the deadlines. Let's fix your grades together!

Get Your Personalized Essay in 3 Hours or Less!

We use cookies to personalyze your web-site experience. By continuing we’ll assume you board with our cookie policy .

• Instructions Followed To The Letter
• Deadlines Met At Every Stage
• Unique And Plagiarism Free

Essay on Markets: Top 4 Essays | Economics

In this essay we will discuss about:- 1. Meaning of Markets 2. Features of the Markets 3. Elements 4. Performance.

Essay on Markets  

Essay # 1. meaning of markets :.

The term market structure refers to the type constituents and nature of an industry. It includes the relative and absolute size of firms, active in industry, easiness in the entry into business, the demand curve of the firm products etc.

There are two extremities of the market structure on this basis, on one end there is a market of perfect competition and on the other perfect monopoly market. In between these two extremities there are monopolistic competition, oligopoly, duopoly etc.

ADVERTISEMENTS:

In common usage the word market designates a place where certain things are bought and sold. But when we talk about the word market in economics, we extend our concept of market well beyond the idea of single place to which the householder goes to buy something. For our present purpose, we define a market as an area over which buyers and sellers negotiate the exchange of a well- defined commodity. For a single market to exist, it must be possible for buyers and sellers to communicate with each other and to make meaningful deals over the whole market.

Several economists have attempted to define the term market as used in economics.

Some of them are as under:

According to Curnot, “Economists understand by the term market not any particular market-place in which things are bought and sold, but the whole of any region in which buyers and sellers are in such free intercourse with one another that the price of the same goods tends to equality easily and quickly.”

In the eyes of Prof. Chapman, “The term market refers not necessarily to a place but always to a commodity and the buyers and sellers who are to direct competition with one another”.

In simple words, the term market refers to a structure in which the buyers and sellers of the commodity remain in close contact.

Essay # 2. Features of the Markets:

On the basis above-mentioned definitions we can mention following main features of the market:

(i) Commodity:

For the existence of market, a commodity- essential this is to be bought and sold. There cannot be a market without commodity.

(ii) Buyers and Sellers:

Buyers and sellers are also essential for market. Without buyers and sellers the sale-purchase activity cannot be conducted which is essential part of a market.

(iii) Area:

There should be an area in which buyers and sellers of the commodity live in. It is not essential that the buyers and sellers should come to a particular place to transact the business.

(iv) Close Contact:

There should be close contact and communication between, buyers and sellers. This communication may be established by any method. For example, in olden days this contact and communication was possible only when the buyers and sellers of a particular commodity could come at a particular place.

But now with the developed means of communication physical presence of buyers and sellers at one particular place is not essential. They can contact with, each other through letters, telegrams, telephones, etc. In the boundary of a market we include only those buyers and sellers who can maintain regular close contacts.

For instance, India’s farmers (or sellers of grains) have no close contacts with the consumers (or buyers) of England, hence though they are the buyers and sellers of grains yet do not come under the purview of a market.

(v) Competition:

There should be some competition among buyers and sellers of the commodity in a market.

Essay # 3. Elements of Market Conduct:

(a) seller and buyer concentration:.

Here, seller concentration means in certain industry the number of active firms is very limited and these few firms produce a large part of the total supply. In other words, there firms possess the market power in a sense that any one of these firms can affect the market price by making change in the quantity of its product.

In full competition, each firm produces a very small part of the total production. Hence, it cannot affect the market price. In this type of market, the seller concentration is zero. So, as we move from the perfect competitive market towards pure monopolist market, the quantity of seller concentration increases.

(b) Market Power:

Every competitive firm attempts to get market power by making difference in the product. From economic point of view difference in the product or product heterogeneousness affects the market, structure significantly. In the position of homogeneous product when a seller makes even a slight change in the price of product the consumers begin to purchase the product sold by other producers.

In other words the firm producing homogeneous product has to face the perfectly elastic demand curve. On the contrary in the position of heterogeneous products any single firm can increase some price without being affected due to the preferences of the consumer.

(c) Product Differentiation:

In the perfect competition market all firms sell the same or homogeneous product. But in the market, in reality a single product is sold by the different producers, claiming that all products (such as toothpaste) are not same. The producers bring variety by means of brand name, packaging, size, colour, taste, weight etc. In spite of no locational differences, variety is seen by means of retailer service, home delivery, credit facility etc.

(d) Barriers in Entry:

Seller’s concentration indicates that how some firms acquire dominance in an industry, consequently the real competition between the firms is lessened or limited. If there are some barriers in the entry of new firms, then the prospective competition is also limited.

The types of such barriers are as follows:

(i) Cost profit to the present firm which is not available to the new firms.

(ii) Legal barriers in entry.

(iii) Product difference and advertisement etc. cause the presence of strong preference among consumers for the products sold by the established firms.

(e) Other Elements:

Apart from these main elements, there are some other elements to be considered. One of them is the growth rate of market demand. In this situation the firms are somewhat idle. On the contrary in a rapidly growing industry the firms also become more competitive. In the growing market every firm is struggling and striving for more demand.

If there is more elasticity of the price demand of a product, the firm will be motivated to lessen the price in order to increase ones portion in the total sale. In the condition of oligopoly when a firm decreases price other firms also do the same. Then all firms derive benefit in the condition of more elastic demand. If the product demand is inelastic no firm will tend to change price.

Essay # 4. Market Performance:

Market performance means the evaluation of the derivation of the behaviour of any industry when it behaves differently than the established superior laws of the market. It is assumed that in the position of the perfect competition only an industry can perform well. But when the market is derivated from the condition of perfect competition, then the market behaviour also changes. Now the question arises, as to how a market performance can be evaluated in any industry?

Certain acceptable indicators are as follows:

1. Profitability:

All firms have an objective like profitability, profit maximisation or satisfactory level of profit. But profitability in any industry does not depend only upon the performance of the firm. It also depends upon monopolist power, product diversity, or inefficient use of resources etc. Economists have used the hypothesis of normal profit. It is the rate of profit which makes the firm not to leave the industry. The performance level affects the quantity of profit significantly.

2. Productivity:

It is an index of production of per unit input used, if more production is possible by the same units then there is growth in productivity. Growth in production is an indicator of efficient performance of an industry.

But this index is also not without practical shortcomings. Till we cannot keep the other factors stable, it is difficult to measure productivity of certain means/ inputs, like labour on capital. Besides this the units of labour, capital, or land are heterogeneous, so when a change occurs in the quantity of an input, there is also a change in its quality. For example when we recruit more workers, first we recruit more skilled ones and then the less skilled.

Information about the performance of an industry can be derived from its growth rate also. The measure of growth rate of an industry can be known from the product, employment and wealth creation. But every index creates problems in measuring the performance.

For example, it is possible that in an industry more and more people get employment, or there is a rapid rate of wealth accumulation. But it is also possible that the resources are not efficiently used. Likewise when the growth rate is high we do not have information of production cost, whether it is more or less.

4. Effect on Index:

Now the question arises whether the market structure affects the indexes of market performance. Profitability is one of the many indicators of performance. For example in perfect competition, a firm earns normal profit in long term while in monopoly or market having monopolist power, the firm earns extra-normal profit in long term also.

Excessive seller concentration, barriers in entry and product difference can make firm earn more profit in long term also. Likewise we take growth index. Both in monopoly and oligopoly markets firm produces less than its capacity or there is a position of extra capacity.

5. Ill Effects on Firm Growth:

Thus, the growth of the firm is affected adversely. Productivity and efficiency are associated with each other. In the position of monopoly and oligopoly a firm has extra capacity which means inefficient use of resources and low level of productivity. Lastly, the social performance of a firm is also affected by market structure. In monopoly and perfect competition, consumer and labour, both are exploited. Growth in competition decreases the power of exploitation of the producers.

6. Social Performance:

The performance level of an industry can be evaluated in the item of many social bases. These social bases can be income redistribution or other indicators of social welfare. For example the social performance of the medicine industry can be measured by the decrease in the illness period or death rate.

If the expansion/growth of any industry results in decrease of present inequalities of income in society, or it helps in reducing poverty or unemployment then the performance level of the industry can be called high.

Market Structure Conduct Performance Interrelations:  

In micro economics the equilibrium of the firm and industry is studied. On the contrary industrial economics is more related to change in market structure, resulting in the changes of market behaviour or firm’s behaviour, which ultimately affect their market performance. So, industrial economics can be studied with the help of structure conduct performance approach or model.

Complexity of Interrelations:

According to the economists, the interrelations between the structures, conduct performance are sufficiently complex. To conclude it can be said that market structure affects the behaviour of a firm and behaviour of a firm affects its performance (profitability) in the market.

Related Articles:

• Markets under Monopolistic Competition | Markets
• Monopoly and Perfect Competition | Markets | Economics
• Characteristics of a Perfect Competition | Market | Economics
• Aspects of Monopolistic Competition | Markets

Market Structure Analysis – Amazon

One of the most prominent online merchants in the world is Amazon. Amazon runs a variety of e-commerce, cloud computing, and artificial intelligence services from its headquarters in Seattle, Washington. Amazon’s 518210 NAICS code (North American Industry Classification System) denotes electronic shopping and mail-order houses. As stated by the U.S. According to the Census Bureau, the electronic shopping and mail-order sector recorded retail sales of $91.6 billion in 2018, with a large portion of that figure attributable to Amazon ( Amazon.com Inc – ZIP 98109, NAICS 518210, SIC 7374 , n.d.).

The interaction between customers and sellers is essential to how Amazon runs. Amazon is the middleman for seller transactions so that customers can explore and buy products from a range. Amazon can retain a competitive advantage and draw customers to its platform. Amazon competes in a market with an oligopoly structure, with few rivals and high entry barriers, including Walmart and eBay. Because of the market structure, Amazon can charge more for its goods and benefit from economies of scale that its rivals cannot. Amazon uses a B2C (business-to-consumer) business strategy to interact with customers, allowing it to successfully promote its goods and services directly and build connections with them (Myers & Tauber, 2011).

In the fiercely competitive retail sector, Amazon competes against other e-commerce platforms and traditional retailers. Amazon has been under much pressure from the competition as prospective consumers look for cheap pricing and dependable delivery dates to obtain their things as soon as feasible. Since they are now embroiled in a protracted labour dispute, Amazon is likely to see higher labour expenses soon. Rising operating expenses may challenge the capacity of Amazon to sustain its cheap pricing. Moreover, due to the rise of low-cost subscription services like Alibaba and Rakuten, Amazon is experiencing increasing competition. Amazon will need to spend more on marketing and advertising to rebrand itself and maintain its position as a leader in the online retail sector if it wants to maintain its consumer base (STRUHL, 2001).

Market obstacles, including startup capital costs, advertising, and laws, may impact the market performance of a firm and its decision-making processes. Companies need to be aware of how many restrictions they must follow, how much money they have for advertising, and how much starting capital they need to spend.

In the short-run, the interruption to their business operations brought on by the worldwide health epidemic is one of the biggest problems Amazon will encounter. Online shopping demand has suddenly increased, and many consumers have experienced delivery delays. To fulfil consumer expectations, Amazon has been compelled to fast adjust its processes and develop innovative solutions (Godoy et at., 2005).

Long-term political unpredictability will pose a growing threat to Amazon because of the possible repercussions of Brexit and the US-China Trade War. Amazon will also have to contend with the increasing use of alternative payment methods like bitcoin and electronic payments. By expediting the payment process for clients and increasing market competitiveness, adopting these new payment technologies might significantly impact the sector (Harracá, 2017). Amazon may encounter difficulties from new rivals like Walmart, who are quickly joining the e-commerce market and want to take advantage of the expanding popularity of online buying. As a result, Amazon now faces a more challenging competitive environment, which has pressured its price strategy. Another source of competition for Amazon is the expanding omnichannel shopping trend, which allows consumers to buy online and offline goods (Gupta et al., 2015).

When making business choices, it is crucial from a Christian point of view to consider moral concerns and ethical consequences. The Christian worldview promotes honesty in all business choices, highlighting the value of justice and integrity and considering how decisions may affect workers, clients, and society. Regarding Amazon, among other things, moral factors should be considered while recruiting, establishing and providing salaries, and observing working conditions. Furthermore, it is critical that Amazon create a business plan that considers corporate responsibility and ethical issues. For Amazon, this entails considering their social effect and trying to help their clients, staff members, and other stakeholders. Fair treatment of individuals, ethical behaviour, and prudent resource management is required (Adlucent. n.d.).

In conclusion, Amazon competes in a market with an oligopoly structure and is anticipated to encounter difficulties caused by growing labour costs, more competition, geopolitical unpredictability, and the possibility of disruption from other payment methods. Amazon should also consider the Christian viewpoint when making choices and developing strategies to ensure that moral and ethical factors are considered.

Adlucent. (n.d.).  The Top Three Amazon Challenges, And How To Solve Them . Adlucent. https://www.adlucent.com/resources/blog/the-top-three-amazon-challenges-and-how-to-solve-them/

Amazon.com Inc – ZIP 98109, NAICS 518210, SIC 7374 . (n.d.). Siccode.com. https://siccode.com/business/amazon-com-inc

Godoy, R., Byron, E., Reyes-García, V., Vadez, V., Leonard, W. R., Apaza, L., … & Wilkie, D. (2005). Income inequality and adult nutritional status: anthropometric evidence from a pre-industrial society in the Bolivian Amazon. Social Science & Medicine, 61(5), 907-919.

Gupta, A., Agarwal, D., Tan, D., Kulesza, J., Pathak, R., Stefani, S., & Srinivasan, V. (2015, May). Amazon redshift and the case for simpler data warehouses. In Proceedings of the 2015 ACM SIGMOD international conference on management of data (pp. 1917-1923).

Harracá, M. (2017). Business models and organizational forms: searching the edge of innovation in Google and Amazon (Doctoral dissertation, Master Thesis).

Myers, J. H., & Tauber, E. (2011).  Market structure analysis . Marketing Classics Press.

STRUHL, S. (2001, June 1).  Market structure analysis: What and how to do it | Article | Quirks.com . Www.quirks.com. https://www.quirks.com/articles/market-structure-analysis-what-it-is-and-how-to-do-it

Cite This Work

To export a reference to this article please select a referencing style below:

Related Essays

Business case study: jbh, sales team management for tesla, spain, critical reflection and action plan development, operations management & analytics for management, management information systems, social media announcement-starbucks company, popular essay topics.

• American Dream
• Artificial Intelligence
• Black Lives Matter
• Bullying Essay
• Career Goals Essay
• Causes of the Civil War
• Child Abusing
• Civil Rights Movement
• Community Service
• Cultural Identity
• Cyber Bullying
• Death Penalty
• Depression Essay
• Domestic Violence
• Freedom of Speech
• Global Warming
• Gun Control
• Human Trafficking
• I Believe Essay
• Immigration
• Importance of Education
• Israel and Palestine Conflict
• Leadership Essay
• Legalizing Marijuanas
• Mental Health
• National Honor Society
• Police Brutality
• Pollution Essay
• Racism Essay
• Romeo and Juliet
• Same Sex Marriages
• Social Media
• The Great Gatsby
• The Yellow Wallpaper
• Time Management
• To Kill a Mockingbird
• Violent Video Games
• What Makes You Unique
• Why I Want to Be a Nurse
• Send us an e-mail

• Dissertation Help Custom Writing Service
• Essay Writing: How to Write an Essay
• Application Paper
• Coursework Writing Service that You Will Like
• Research Proposal Writing Service
• How it Works

Analysis of Market Structures

Introduction

A market structure entails the organizational and characteristics of a market. The various market structures involved in an economy include perfect competition, monopolistic, monopoly, and oligopoly. As a consulting officer, I was requested by my local Mayor to analyze the various market structures. In this paper, we are going to discuss the different types of market structures and provide a real-life example of a market structure in the region. Also, the paper will cover the influence of high barrier entry to the long-run profitability of the firms and the competitive pressure surrounding them. Moreover, the paper will also detail the price elasticity of demand, the role of the government in each market structure and the effect of international trade.

Firms operate under different market conditions, and they all want to maximize profit at their levels of output. Therefore, they behave differently according to their market conditions. As a consultant, the behaviors and characteristics of the various markets are analyzed with respect to the market nature and conditions. The first market structure is perfect competition. It is a type of market structure that is characterized by many buyers and sellers who are independent and exchange identical products (Schwartz, 2010). There are no single firm or buyers who have the power to influence the prices of the market. However, the prices of goods and services are influenced by the market condition of supply and demand.

Similarly, since the firms offer identical products, there is no need for them to advertise their brand names. Also, the consumers are well informed about the prices of the products and services (Otani, & El-Hodiri, 2012). Therefore, they will purchase the goods from stores that offer low prices. Moreover, well-informed sellers also lower their prices to match those of their competitors, and this allows them to retain customers. Lastly, the buyers and sellers are free to enter and exit the business. The freedom provided by the market structure makes it difficult for sellers to control the market.

In this market, the firms maximize their efficiency levels to determine the total surplus. Since the equilibrium price is determined by the forces of demand and supply, firms will select a level of output that is ideal for them to maximize profit at the price given. Second, firms under perfect competition offer total output at a low price. In comparison to other markets, the prices are relatively low. The output is produced at the point where the prices are equal to the marginal revenue and marginal cost. That is P=MR=MC (Otani, & El-Hodiri, 2012).

The second market structure is monopolistic competition. It entails many buyers and sellers, but the firms sell differentiated products (Schwartz, 2010). Products in this market structure are a little different. Similarly, firms extend their differentiation to store design, location, and means of payment, packaging, and delivery. Firms also use advertising or promotional campaigns to reach consumers and convince them about their products. Lastly, there are no barriers to entry and exit the market. Firms can enter and get out of the business for their own pleasure.

In this market structure, consumers choose the products hence their opportunity of choices are more than perfect competition. Similarly, firms offer high prices for their products since they moderately control the prices of goods and services while their output is low. Therefore, regarding efficiency, this market structure is less efficient compared to the perfect competition (Goodwin, 2009). Firms under this market structure produce output at the point where the marginal revenue is equal to the marginal cost. Moreover, in the long-run the firms do not experience economic profit.

Third, oligopoly is a market structure with a few large sellers dominating the industry. The firms may sell either identical or differentiated products (Goodwin, 2009). For example, the auto-industry can differentiate its products while the steel industry standardizes them. The firm’s price is above the marginal cost and in the long-run, the firms can experience economic profit since there are barriers to entry and exit the industry.

Some of its characteristics include interdependent behavior. The oligopolistic industry is so large that when one firm acts the other also follow the suit. For example, when one firm reduces its prices or offers discount on its products, the other firms in the same industry also do the same to retain the customers and maintain their operations in the industry (Goodwin, 2009). The second characteristic is pricing behavior. When one of the oligopoly firms implement a price increase and other firms do not follow, the firm that initiated the increase will be forced to take the price back to the original or less it will lose the customers. Since firms act together regarding prices, most of the firms employ non-price competition by advertising their products hence making it difficult for rivals to respond.

Fourth, a monopoly market structure entails one seller of a particular product (Goodwin, 2009). The product offered by a monopolist firm is unique and consumers have no choice about the product to purchase. Also, large capital required, patent right and ownership of resources are some of the sources of monopoly power hence other firms find it difficult to enter the industry. Since there is only one firm in the industry, a monopolist controls the market and set the price at the point where marginal revenue equals marginal cost (MR=MC) (Mastrianna, 2012). For this case, the MR is the demand curve and price is set where the quantity of the product equals the demand. Therefore, price equals marginal cost. In the long-run, the firm experiences economic profit.

In my local city, we have the following example of market structures. First, we have perfect competition and a real-life example of the market that is close include the agricultural products market.  A perfectly competitive market does not exist; however, some firms operate close to a perfectly competitive market structure. For the case of agricultural products, industries such as fish and grain sell same products while there free entry and exit into the industry. Similarly, the industry experiences many buyers and sellers.

Second, we have monopolistic competition. A real-life example of the industry in this markets is men and women clothing industries. Firms in this industry differentiate their products so that they look appealing to their customers. The products can be of the same price, but they are designed differently, located at different shop outlets. Also, the firms can offer different means of payment that may include cash, cheques or credit cards. Firms in the clothing industries do not experience barriers to entry and exit. Similarly, we have many buyers and sellers in this particular industry.

Third, a real-life example of an industry in an oligopoly market is a soft drink industry, and the firms include Coca-Cola and Pepsi. An oligopoly market entails a few large sellers who dominate the market. There are only a few large soft drink industries in my nation and precisely my local city. Other firms experience barriers to entry and exit into an oligopoly market since large capital is required to operate the market and also there is high advertisement cost (Mastrianna, 2012). Firms in this industry operate interdependently and when one firm acts others also follow. For example, if Coca-Cola reduces the price of its products, Pepsi will also reduce the product’s prices to retain customers.

Lastly, in a monopoly market, we have a cable television operator company. The cable TV operator company acts as a monopoly since it is the sole provider of media services in the region. The firm does not face competition from the rivals since the market has barriers to entry and exit. Similarly, in the short-run, the firms generate an abnormal profit because it set prices for its products and services. Moreover, the cable TV operator company enjoy economic profit in the long-run.

Some markets have barriers to entry and exit; however, the high barriers into the market may have an influence the long-run profitability of the companies. In a perfectively competitive market structure, there are no barriers to entry; however, firms experience high barriers in a monopoly and oligopoly market structures. Therefore, any person or firm that would like to start the business in these market situation would find it difficult. First, firms in these market structures will experience an economic profit in the short-run, and this will encourage other firms to come in and compete, but the high barriers to entry will eventually discourage them.

The factors that contribute to the high barriers to entry include the following. Firms in this market structures always operate under high advertisement cost. The high advertisement costs involve the use of resources and commitment by firms hence this discourages most firms since they are not capable of engaging in such kind of operations. Also, for the case of a monopoly, the government may decide to provide them with patent rights to operate their business without competition hence making them the sole producer and distributor of certain products. Similarly, for firms to operate as a monopoly or oligopoly, they require large capital and technological advancement to start the business. Such requirements act as a hindrance to other firms to operate in the market.

Therefore, since we have high barriers to entry even in the long-run, firms operating as monopolies or oligopolies will still enjoy economic profit in the long-run (Mastrianna, 2012). Besides, firms will continue producing the amount of output they wish to produce and set their prices. Since firms do not experience competition especially the monopolies, they will either increase or decrease the supply of the products and still make the profit in the long-run.

A market such as a monopoly with high barriers does not experience competitive pressure. A monopoly market structure involves a single seller of a product with no good substitute (Amacher, & Pate, 2013). Therefore, since there are no firms that sell a substitute product, then the firm does not face competition. Firms that offer water, gas or electricity utilities operate as monopolies, and they are the only ones that provide such good and services. Moreover, since the market has only one producer of a good, the market’s demand curve is a monopolist’s demand curve. The firms will maximize profit and expand its output at the point where the marginal revenue equals the marginal cost (MR=MC).

Therefore, a firm that operates as a monopolist will always set its price along the demand curve that is consistent with the output produced. Because of the high entry barriers that discourage other firms from competing or operating the business, the monopolists are protected from competitive pressure. In such situation, the monopolists will earn an economic profit even in the long-run. Mostly, the monopolist will use its powers to restrict production of goods and prevent competition from the rivals (Mastrianna, 2012). In such circumstances, the market will experience artificial shortage hence this causes prices to go high.

The term price elasticity is the responsiveness of the demand for a product due to the change in its price. Similarly, it can also refer to the amount of money consumers are willing and able to pay for a particular product (Amacher, & Pate, 2013). In a perfect competition market structure, the prices of goods and services are influenced by the forces of demand and supply. Therefore, a change in price will not have an adverse effect on the quantity demanded so long as the materials used are not expensive.

The following is the diagram for a perfect competition market structure.

In a monopolistic competition, the market has many buyers and sellers. In case there is a price change, a few of the consumers will remain with the market situation while others will move to sort themselves with products of low prices.

An oligopoly market structure has a few large sellers of products. When one firm in the industry try and change the prices of its goods, the other rival firms also change theirs. Similarly, the price leader will set the price and the other firms will follow. Moreover, a change in price in an oligopoly market will turn the industry into either a monopolistic or a monopoly.

Lastly, in a monopoly market structure, there is one producer of a product. The monopolist always set their prices high and generate more revenue. However, a price change can decrease the company’s revenue since consumers will demand less of the products. Also, the company can completely close its operations.

The government play vital role in each market structures ability to price its products. Its roles have significant influence as far as the interest of the consumers and the firms are concerned. The government can either directly participate in the market or engage indirectly through taxation, regulation, and subsidy. The government will intervene in a situation when the markets do not operate well (Amacher, & Pate, 2013). Therefore, regulation helps the markets operate effectively. Also, government’s regulation is vital to ensuring that it distorts competition. The government can regulate the number of new firms that enter the market and their ability to provide incentives for them to compete.

Competition laws enforced by the government protect the consumers against abuse from firms with market powers. The main reason behind government regulation is to ensure confidence in both the buyers and sellers (Amacher, & Pate, 2013). It protects the health and safety of the consumers through licensing and approving the suppliers.

The government can also control markets through subsidies and taxation. When the government imposes subsidies and taxes, it influences competition among firms by changing their cost of operation. In the end, the change in the cost of production will influence their production decision. Also, government’s intervention through taxes and subsidies helps to correct situations of market failures (Schwartz, 2010). The common examples include taxation of pollution whereby firms are required to produce low-carbon and environmentally friendly goods. Similarly, the government can subsidize education sector in case private schools offer expensive services. Lastly, the government subsidies and taxes can create entry barriers in a market. Firms will not face competition hence they will build and exploit the market power.

International trade involves countries exchanging goods and services through imports and exports. Therefore, the global events have been influenced by price, supply, and demand for goods and services. International trade affects market structures in the following ways. First, through trade companies can import goods from other countries and reduce their prices hence affecting the domestic goods available. Mostly, the imported products are always cheaper hence consumer will prefer purchasing cheaper products. Companies have also gone far and outsource call centers so that they can reduce the cost of production; however, such moves affect the economy of the country since the job growth reduces. International trade also increases the input of the firms because they can import the scarce raw materials hence increasing the output and the industry’s returns.

   References

Amacher, R., & Pate, J. (2013). Microeconomic principles and policies. San Diego, CA: Bridgepoint Education, Inc.

Goodwin, J. A. (2009). Microeconomics in Context. New York: M.E. Sharpe.

Mastrianna, F. (2012). Basic economics . Cengage Learning.

Otani, Y., & El-Hodiri, M. (2012). Microeconomic theory . Springer Science & Business Media.

Schwartz, R. A. (2010). Micro markets: A market structure approach to microeconomic analysis (Vol. 515). John Wiley & Sons.

  Do you need an Original High Quality Academic Custom Essay ?

Have a language expert improve your writing

Run a free plagiarism check in 10 minutes, generate accurate citations for free.

• Knowledge Base
• How to structure an essay: Templates and tips

How to Structure an Essay | Tips & Templates

Published on September 18, 2020 by Jack Caulfield . Revised on July 23, 2023.

The basic structure of an essay always consists of an introduction , a body , and a conclusion . But for many students, the most difficult part of structuring an essay is deciding how to organize information within the body.

Instantly correct all language mistakes in your text

Upload your document to correct all your mistakes in minutes

Table of contents

The basics of essay structure, chronological structure, compare-and-contrast structure, problems-methods-solutions structure, signposting to clarify your structure, other interesting articles, frequently asked questions about essay structure.

There are two main things to keep in mind when working on your essay structure: making sure to include the right information in each part, and deciding how you’ll organize the information within the body.

Parts of an essay

The three parts that make up all essays are described in the table below.

Order of information

You’ll also have to consider how to present information within the body. There are a few general principles that can guide you here.

The first is that your argument should move from the simplest claim to the most complex . The body of a good argumentative essay often begins with simple and widely accepted claims, and then moves towards more complex and contentious ones.

For example, you might begin by describing a generally accepted philosophical concept, and then apply it to a new topic. The grounding in the general concept will allow the reader to understand your unique application of it.

The second principle is that background information should appear towards the beginning of your essay . General background is presented in the introduction. If you have additional background to present, this information will usually come at the start of the body.

The third principle is that everything in your essay should be relevant to the thesis . Ask yourself whether each piece of information advances your argument or provides necessary background. And make sure that the text clearly expresses each piece of information’s relevance.

The sections below present several organizational templates for essays: the chronological approach, the compare-and-contrast approach, and the problems-methods-solutions approach.

Receive feedback on language, structure, and formatting

Professional editors proofread and edit your paper by focusing on:

• Academic style
• Vague sentences
• Style consistency

See an example

The chronological approach (sometimes called the cause-and-effect approach) is probably the simplest way to structure an essay. It just means discussing events in the order in which they occurred, discussing how they are related (i.e. the cause and effect involved) as you go.

A chronological approach can be useful when your essay is about a series of events. Don’t rule out other approaches, though—even when the chronological approach is the obvious one, you might be able to bring out more with a different structure.

Explore the tabs below to see a general template and a specific example outline from an essay on the invention of the printing press.

• Thesis statement
• Discussion of event/period
• Consequences
• Importance of topic
• Strong closing statement
• Claim that the printing press marks the end of the Middle Ages
• Background on the low levels of literacy before the printing press
• Thesis statement: The invention of the printing press increased circulation of information in Europe, paving the way for the Reformation
• High levels of illiteracy in medieval Europe
• Literacy and thus knowledge and education were mainly the domain of religious and political elites
• Consequence: this discouraged political and religious change
• Invention of the printing press in 1440 by Johannes Gutenberg
• Implications of the new technology for book production
• Consequence: Rapid spread of the technology and the printing of the Gutenberg Bible
• Trend for translating the Bible into vernacular languages during the years following the printing press’s invention
• Luther’s own translation of the Bible during the Reformation
• Consequence: The large-scale effects the Reformation would have on religion and politics
• Summarize the history described
• Stress the significance of the printing press to the events of this period

Essays with two or more main subjects are often structured around comparing and contrasting . For example, a literary analysis essay might compare two different texts, and an argumentative essay might compare the strengths of different arguments.

There are two main ways of structuring a compare-and-contrast essay: the alternating method, and the block method.

Alternating

In the alternating method, each paragraph compares your subjects in terms of a specific point of comparison. These points of comparison are therefore what defines each paragraph.

The tabs below show a general template for this structure, and a specific example for an essay comparing and contrasting distance learning with traditional classroom learning.

• Synthesis of arguments
• Topical relevance of distance learning in lockdown
• Increasing prevalence of distance learning over the last decade
• Thesis statement: While distance learning has certain advantages, it introduces multiple new accessibility issues that must be addressed for it to be as effective as classroom learning
• Classroom learning: Ease of identifying difficulties and privately discussing them
• Distance learning: Difficulty of noticing and unobtrusively helping
• Classroom learning: Difficulties accessing the classroom (disability, distance travelled from home)
• Distance learning: Difficulties with online work (lack of tech literacy, unreliable connection, distractions)
• Classroom learning: Tends to encourage personal engagement among students and with teacher, more relaxed social environment
• Distance learning: Greater ability to reach out to teacher privately
• Sum up, emphasize that distance learning introduces more difficulties than it solves
• Stress the importance of addressing issues with distance learning as it becomes increasingly common
• Distance learning may prove to be the future, but it still has a long way to go

In the block method, each subject is covered all in one go, potentially across multiple paragraphs. For example, you might write two paragraphs about your first subject and then two about your second subject, making comparisons back to the first.

The tabs again show a general template, followed by another essay on distance learning, this time with the body structured in blocks.

• Point 1 (compare)
• Point 2 (compare)
• Point 3 (compare)
• Point 4 (compare)
• Advantages: Flexibility, accessibility
• Disadvantages: Discomfort, challenges for those with poor internet or tech literacy
• Advantages: Potential for teacher to discuss issues with a student in a separate private call
• Disadvantages: Difficulty of identifying struggling students and aiding them unobtrusively, lack of personal interaction among students
• Advantages: More accessible to those with low tech literacy, equality of all sharing one learning environment
• Disadvantages: Students must live close enough to attend, commutes may vary, classrooms not always accessible for disabled students
• Advantages: Ease of picking up on signs a student is struggling, more personal interaction among students
• Disadvantages: May be harder for students to approach teacher privately in person to raise issues

An essay that concerns a specific problem (practical or theoretical) may be structured according to the problems-methods-solutions approach.

This is just what it sounds like: You define the problem, characterize a method or theory that may solve it, and finally analyze the problem, using this method or theory to arrive at a solution. If the problem is theoretical, the solution might be the analysis you present in the essay itself; otherwise, you might just present a proposed solution.

The tabs below show a template for this structure and an example outline for an essay about the problem of fake news.

• Introduce the problem
• Provide background
• Describe your approach to solving it
• Define the problem precisely
• Describe why it’s important
• Indicate previous approaches to the problem
• Present your new approach, and why it’s better
• Apply the new method or theory to the problem
• Indicate the solution you arrive at by doing so
• Assess (potential or actual) effectiveness of solution
• Describe the implications
• Problem: The growth of “fake news” online
• Prevalence of polarized/conspiracy-focused news sources online
• Thesis statement: Rather than attempting to stamp out online fake news through social media moderation, an effective approach to combating it must work with educational institutions to improve media literacy
• Definition: Deliberate disinformation designed to spread virally online
• Popularization of the term, growth of the phenomenon
• Previous approaches: Labeling and moderation on social media platforms
• Critique: This approach feeds conspiracies; the real solution is to improve media literacy so users can better identify fake news
• Greater emphasis should be placed on media literacy education in schools
• This allows people to assess news sources independently, rather than just being told which ones to trust
• This is a long-term solution but could be highly effective
• It would require significant organization and investment, but would equip people to judge news sources more effectively
• Rather than trying to contain the spread of fake news, we must teach the next generation not to fall for it

Here's why students love Scribbr's proofreading services

Discover proofreading & editing

Signposting means guiding the reader through your essay with language that describes or hints at the structure of what follows.  It can help you clarify your structure for yourself as well as helping your reader follow your ideas.

The essay overview

In longer essays whose body is split into multiple named sections, the introduction often ends with an overview of the rest of the essay. This gives a brief description of the main idea or argument of each section.

The overview allows the reader to immediately understand what will be covered in the essay and in what order. Though it describes what  comes later in the text, it is generally written in the present tense . The following example is from a literary analysis essay on Mary Shelley’s Frankenstein .

Transitions

Transition words and phrases are used throughout all good essays to link together different ideas. They help guide the reader through your text, and an essay that uses them effectively will be much easier to follow.

Various different relationships can be expressed by transition words, as shown in this example.

Because Hitler failed to respond to the British ultimatum, France and the UK declared war on Germany. Although it was an outcome the Allies had hoped to avoid, they were prepared to back up their ultimatum in order to combat the existential threat posed by the Third Reich.

Transition sentences may be included to transition between different paragraphs or sections of an essay. A good transition sentence moves the reader on to the next topic while indicating how it relates to the previous one.

… Distance learning, then, seems to improve accessibility in some ways while representing a step backwards in others.

However , considering the issue of personal interaction among students presents a different picture.

If you want to know more about AI tools , college essays , or fallacies make sure to check out some of our other articles with explanations and examples or go directly to our tools!

• Ad hominem fallacy
• Post hoc fallacy
• Appeal to authority fallacy
• False cause fallacy
• Sunk cost fallacy

College essays

• Choosing Essay Topic
• Write a College Essay
• Write a Diversity Essay
• College Essay Format & Structure
• Comparing and Contrasting in an Essay

 (AI) Tools

• Grammar Checker
• Paraphrasing Tool
• Text Summarizer
• AI Detector
• Plagiarism Checker
• Citation Generator

The structure of an essay is divided into an introduction that presents your topic and thesis statement , a body containing your in-depth analysis and arguments, and a conclusion wrapping up your ideas.

The structure of the body is flexible, but you should always spend some time thinking about how you can organize your essay to best serve your ideas.

An essay isn’t just a loose collection of facts and ideas. Instead, it should be centered on an overarching argument (summarized in your thesis statement ) that every part of the essay relates to.

The way you structure your essay is crucial to presenting your argument coherently. A well-structured essay helps your reader follow the logic of your ideas and understand your overall point.

Comparisons in essays are generally structured in one of two ways:

• The alternating method, where you compare your subjects side by side according to one specific aspect at a time.
• The block method, where you cover each subject separately in its entirety.

It’s also possible to combine both methods, for example by writing a full paragraph on each of your topics and then a final paragraph contrasting the two according to a specific metric.

You should try to follow your outline as you write your essay . However, if your ideas change or it becomes clear that your structure could be better, it’s okay to depart from your essay outline . Just make sure you know why you’re doing so.

Cite this Scribbr article

If you want to cite this source, you can copy and paste the citation or click the “Cite this Scribbr article” button to automatically add the citation to our free Citation Generator.

Caulfield, J. (2023, July 23). How to Structure an Essay | Tips & Templates. Scribbr. Retrieved April 2, 2024, from https://www.scribbr.com/academic-essay/essay-structure/

Is this article helpful?

Jack Caulfield

Other students also liked, comparing and contrasting in an essay | tips & examples, how to write the body of an essay | drafting & redrafting, transition sentences | tips & examples for clear writing, unlimited academic ai-proofreading.

✔ Document error-free in 5minutes ✔ Unlimited document corrections ✔ Specialized in correcting academic texts