Question

What is classification of market in economics? What is perfect competition market, monopolistic competition market, oligopoly market, monopoly market? Discuss in detail. 

Answer 1

In market classification, most important classification is on the basis of degree of competition. In economic analysis this classification is most important because market price determination is dependent on this classification. From this view-point, the markets are ordinarily divided into following main categories.

1. Perfect Competition Market

2. Monopolistic Competition Market

3. Oligopoly Market

4. Monopoly Market

Properties Of Different Markets

1. Perfect Competition Market - 

Perfect competition market is called that market which has the following characteristics.

1. Large number of buyers and sellers

2. Homogeneity of product

3. Free entry and exit in the market

4. Perfect knowledge of the market and

5. Non discrimination

2. Monopolistic Competition Market -

Monopolistic competition market is that market in which firms compete with each other but it is not like a perfectly competitive market. Ordinarily, the following characteristics are found in the monopolistic competition market.

1. The number of firms is large, but it is not as large as in perfect Competition.

2. Goods are similar but not homogeneous. The goods being sold by each sellers is little bit different from others.

3. In monopolistic competition market, entry and exit is easy and there are no significant barriers.

4. In this market, price is not the only basis of competition between different sellers. Competition is more on non price factors like product quality, design, packaging, advertisement and other methods of sales promotion.

Ordinarily, monopolistic competition market is found in branded consumer goods, like toothpaste, soaps, washing powder, eatables, etc.

3. Oligopoly Market - 

It is a market in which there are few sellers. They either sell homogeneous goods (like petrol, cement) or similar but goods differentiated goods (like automobiles, refrigerators). The most important aspect of oligopoly is mutual interdependence among sellers. It means that they are affected by the actions of each other. For example, if a particular seller reduces the price of its product, then the other producers will also have to do so, otherwise their customers would forsake them and would go to the other seller. In this type of the market also product differentiation and non-price competition have an important role to play. A special type of oligopoly is called Duopoly when there are only two sellers in the market.

Ordinarily, durable goods like T.V., Car, Refrigerator, and other industrial goods have oligopoly markets.

4. Monopoly Market -

When there is only one seller in the market, it is called a monopoly market. In this market, distinction between a firm and the market disappears and the firm becomes the market, that is the equilibrium of the firm and equilibrium of the market is the same event. In such a market the monopolist tries to prevent other sellers from entering his market by creating several barriers to entry. These barriers may be legal, financial, technological or of other types. 

In market classification, most important classification is on the basis of degree of competition.