Tariffs and barriers, natural resources, factors of production, government incentives, and regulatory framework are the major factors responsible for rise of monopoly, oligopoly, and competitive markets. By the means of this article, I’m going to explain how these factors or determinants create different types of market competitions.
What does market competition mean? How does competitive market result in monopoly and oligopoly? What are the characteristics of competitive market? What are the Market competition and forces responsible? And, What are the features of monopoly and oligopoly markets? Let’s find out answers.
Nowadays, the nature and structure of market competition is becoming truly cyclic. It moves in the line of monopoly, oligopoly, competitive, and perfectly competitive markets. Undoubtedly, there are some factors responsible for rise of monopoly, oligopoly, and competitive markets.
Monopoly = Oligopoly = Competitive market = Perfectly competitive market.
The above sequence of market structure changes as per the change in determining factors.
Factors responsible for rise of monopoly, oligopoly, and competitive markets
The following examples of determining factors of market competition are very vital. Theirs detailed description that I have presented in the previous blogs on my business theory.
1.Tariffs and barriers
2.Factors of production
3.Natural resources
4.Comparative advantage
5.Government incentives
6.Regulatory framework
When a single firm enjoys all the conditions in the absence of others, then it is called monopoly. On the other hand, in case of more than one competing firms, we call it oligopoly market competition.
Now, let’s understand the structure and types of competitive markets in more detailed manner.
What are the characteristic features of competitive market
First, there should be a level playing field for everyone. Also, they should have equal rights regarding use of resources.
Second, the numbers of buyers and sellers of the same products should be large enough. Otherwise, it may be termed as oligopoly market.
Third, both buyers and sellers should be price taker. In clarity, the market forces should decide the price of targeted product, instead buyers or sellers.
Finally, in case of, alternative or substitute, the price of the product may affect. Hence, there should not be any effective substitute as well.
Easy guide to understand the market competitions like monopoly and oligopoly and forces
Powerful firms or market participants compete with one another to maximize their market share and profit. Due to different means and ways of competition, following types and examples of market competitions are found in the world.
1.Monopoly market competition
2.Oligopoly market competition
3.Perfect competitive market
Explaining Oligopoly market competition
Let’s know in detail the major types and examples of market competitions.
It is a market with more than one sellers as well as buyers.
More than two sellers + more than two buyers – substitute = oligopoly market competition.
Unlike competitive market, in this market, sellers are closely interdependent.
It implies that the impact of price action of one firm is bound to affect others. In this situation, two factors are important –Low cost production and Market base.
Technically, low cost production is only possible with the help of scientific inventions and lower cost of factors of production.
For a player, entry and exist barriers are so high compare to other markets.
To ensure more effective production, firms form joint venture or opt for mergers.
Second, consumers behaviour is also subject to change according to the available incentives. It means, more the incentive, greater the base and larger the impact on rivals.
Examples of oligopoly market competition are–
1.Mobile market,
2.Telecom industry in India are the better examples of oligopoly market competition.
Easy understanding of Monopoly market competition
Monopoly market results when there is only a single buyer and seller in the given market.
Single seller + many buyers + no substitute = Monopoly Market.
Monopoly market may also result when a government assigns a responsibility on a firm to produce a certain goods for society as a whole as a part of incentives.
In both cases, the respective firm enjoys greater monopoly as long as the will of government and relevancy of product is there with that actor.
Finally, in the perfect competitive market, no one is price maker but price takers. Actually, such type of market rarely possible.
How to understand market forces like demand and supply
What is mean by market force and how does it work? And, What are the market participants? What is mean by market failure? These are some challenging questions that a learner faces while learning microeconomics.
Meaning and examples of market forces
Here, market is place where participants interact for goods and services. And, force implies ability to influence something in favour or against.
For layman’s language, market force is a determinant or potential factor that have ability to influence of the availability of commodities and consequent prices. Let’s take a look at the following examples of factors as market forces.
- Demand and supply
- Governments initiatives
- Multinational companies
- Market participants
- Global actors
- Technical inventions
In terms of numbers, open market manifests more participation than closed market because of regulatory compulsion of respective governments is more in closed market.
Mainly, in the communist or socialistic nations, governments usually, dictate the terms of production and so the direction of given market.
In such markets, the choices of producers and consumers do not matter but the need of society determined by the governments. On the other hand, in free market, demand of market determines the supply of commodities.
Simple description of types of market forces
Conventionally, government’s interventions, demand and supply of consumers and producers, traders, speculators we call as major market forces..
1.Initiatives and interventions of governments
Usually, consumers and producers decide the directions of the quantity, as well as prices of commodities. Apart from these, in certain nations and economies, theirs governments play major role in determining prices, as well as flow of quantity. Largely, they do so by incentives or imposing taxes.
Obviously, incentives woo consumers at targeted commodities; whereas, taxes force them to think against others. Similarly, producers react to the incentives and taxes too.
2.Mechanism of demand and supply
Likely, in a market with lesser barriers and regulatory burden, the choices of consumers and producers determine the course of price action of given commodites.
Whenever the price of a product rises, producers work hard to increase supply in line with increase. Whereas, fall in pieces reduce the degree of supply of that commodity.
Likewise, whenever, supply of a product rises in the market, prices start going down. And, opposite happens when there is a scarcity.
3.How invisible hand functions in open markets? Is it magic of demand and supply?
Meantime, market experience a stage at which the prices of a particular commodity more or less remains in line with desired cost.
For that stage, economists call “market equilibrium” which is short lived phenomenon, and never last long. By other, this ability of market is identified as “invisible hand of market”.
4.Role of traders and speculators to move market forces
Thoughtfully, traders and speculators always play certain role in determining the flow of goods and prices. By the means of hoarding of certain commodity in the time of shortage, they can influence the prices to reap more profit.
In a general market, all these forces play important role in determining the prices of any commodity provided that the discussed factors are there. This is all about the forces of market and factors responsible for rise of monopoly, oligopoly and competitive markets.
Principles of money supply and inflation