Types of Markets in Economics

Markets facilitate trade.

A market is a formal or informal social relation, institution or infrastructure in which the exchange of services, goods, information and trade takes place. It is an organized arrangement that brings together buyers and sellers. Markets vary in location, types, geographic range and size. The main purpose of a market is to facilitate trade and distribute resources to the economy.

Competitive Market

A competitive market (also called monopolistic competition) is one that has multiple buyers and sellers. In a perfectly competitive market, multiple suppliers have an insignificant market share; standardized or homogeneous products are supplied by each supplier; customers have full information on prices and trends; all industry participants (new and existing sellers) have equal access to technology and other resources; there are no barriers to exit and entry; and the market is open to external competition. A competitive market serves as a benchmark for other real-world markets.

Monopoly

A monopoly or monopolistic market is one that has only one firm (or seller) that has the autonomy to raise and lower prices without affecting the demand for its services and products. Monopolies serve the needs of the sellers but are detrimental to customers. They are characterized by an absence of economic competition, technological superiority, no substitute for goods sold and a seller having full control of market power (the ability to lower and raise the prices without losing clients or customers). Examples of monopolies include public utility companies (water, electricity and gas) and Internet service providers in remote areas.

Monopsony

A monopsony is a type of market in which a single powerful buyer controls and affects market prices. Multiple sellers offer goods and services, but there is only a single buyer who has exclusive control of market power and can bring the prices of goods/services down. According to the textbook "Microeconomics: Principles and Applications," a pure monopsony is rare. An example of a monopsony is a coal company in a small town.

Oligopoly

An oligopoly market is characterized by a limited number of competing sellers who sell similar or different products. Sellers compete with each other by aggressive advertising and improved service delivery. An oligopoly sets barriers to entry and makes it difficult for new sellers to enter the market. Barriers include patent rights, financial requirements and legal barriers. Tobacco companies and airlines are oligopolies.

Oligopsony

An oligopsony market has a few buyers and multiple sellers. A duopsony is a type of oligopsony that has two buyers. The buyers affect each other's buying action. An example of an oligopsony is the U.S. fast food market, in which a few major buyers (Burger King, McDonald's and Wendy's) control the meat market.

References

• "Microeconomics: Principles and Applications"; Robert Ernest Hall, Marc Lieberman; 2009
• Fairleigh Dickinson University: Monopoly
• "Principles of Microeconomics"; TR Jain, VK Ohri; 2008