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The degree of competition in an industry can also influence market performance and business behavior.
Market structure is related to the ease or difficulty of companies entering and exiting the market. Guidance regarding aspects that have an important influence on business behavior and market performance will be obtained from this structure.
What is Market Structure
Quoting E-journal.uajy.ac.id , market structure shows market characteristics such as the number of buyers and sellers, product conditions and obstacles that exist in the market. Differences in these elements differentiate the way market players in the industry behave to determine differences in market performance that occur.
In economic analysis, markets are divided into perfect competition and imperfect competition (monopoly, monopolistic, oligopoly and monopsony). The market characteristics of an industry have an important meaning for the competitive climate between companies in the market in particular and economic conditions in general.
Market structure is the classification of producers into several market forms. Market forms can be classified based on the products produced, the number of companies in an industry, whether it is easy to enter or exit the industry and the role of advertising in industrial activities.
Types of Market Structure
Based on the determining factors, according to Tri Kunawangsih there are 4 types of structure in the market, the following are:
1. Perfect Competition Market
A perfectly competitive market is a market structure that frees market participants to enter and exit the market and has open information regarding merchandise. In a perfectly competitive market, there cannot be a market monopoly.
Fraud, product counterfeiting and other fraud can be prevented with product and product uniformity. In addition, any dishonesty in economic freedom can be criticized. The following are the characteristics of a perfectly competitive market:
· The number of sellers and buyers is quite large
No seller or buyer can influence the market price. Prices are determined by independent supply and demand mechanisms.
· Homogeneous Products
Homogeneous products produced by sellers are exactly the same in quality, size, shape, color, taste and others. Buyers cannot differentiate between one product and another.
· No Government Interference
The government cannot interfere in regulating production in the market and setting prices. The government only plays a supervisory role so that there are no violations of law or public order.
2. Monopoly Market
A monopoly market is a market structure that has one single seller in the market without any competitors. The price of a monopoly product will remain stable and demand will not decrease even though the prices of other products fall. A single entrepreneur can completely determine the quantity, selling price and other policies. The following are the characteristics of a monopoly market:
· Only One Seller
There are no competitors or substitutes for similar products so the seller has full power over the market.
· Inhomogeneous Products
The products produced by sellers do not have perfect substitutes. Buyers cannot move to other products that are cheaper or better.
· Limited Mobility
Production factors and goods produced are difficult to move from one place to another because they have obstacles. Barriers could be legal, licensing, patents, privileges or high production costs.
· Imperfect Information
Monopoly sellers have more information than buyers such as about the quality, price and availability of the product in the market. A monopoly seller can manipulate information or cheat to benefit himself.
· There is government interference
There is government intervention in setting prices or regulating production in monopoly markets to protect the interests of society or consumers. The government can give special permits to monopoly sellers to run businesses.
3. Monopolistic Market
A monopolistic market is a market structure that combines perfect competition and monopoly. In this structure, companies are given the freedom to enter and exit the market. Apart from that, the goods produced are quite diverse and differentiated. Product differentiation can be in the form of packaging, branding, color, taste, design, service and others.
To understand more about monopolistic competition markets, here are the characteristics:
· The number of sellers is quite large
There are many sellers who sell different products but have the same function. In a monopolistic market, sellers have little power to influence market prices.
· Inhomogeneous Products
The products produced by sellers have differentiation or characteristics that differentiate them from other products. Buyers can choose products according to their tastes or preferences.
· Quite High Mobility
Production factors and goods produced can be moved from one place to another easily without any significant obstacles. Obstacles faced can be in the form of consumer loyalty, advertising and promotion costs.
· Simply Perfect Information
Sellers and buyers have sufficient information regarding the quality, price and availability of products on the market. Sellers and buyers can compare one product with another before buying or selling it.
· No Government Interference
The government does not interfere in setting prices or regulating production in monopolistic competitive markets. The government only acts as a supervisor to prevent violations of the law.
Examples of monopolistic competition markets are toothpaste, bath soap, shampoo, detergent and others.
4. Oligopoly Market
An oligopoly market is a market structure that has a small number of sellers, namely only around 2-10. Markets with this structure have perfect or imperfect substitutes. The price of an oligopoly’s product depends on the price of its competitors’ products.
Oligopoly entrepreneurs must consider the reaction of competition before setting selling prices, policies and quantities. The following are the characteristics of an oligopoly market:
· Very few sellers
There are several sellers who sell the same or different products but have the same function. The seller has great power in influencing market prices.
· Homogeneous or Inhomogeneous Products
The products produced by sellers can be exactly the same or have certain differentiation. Buyers can switch to other products that are considered cheaper or better if there is a price change.
Market Structure (Pexels)
· Low Mobility
Production factors and goods produced are difficult to move from one place to another because there are quite strong obstacles. These obstacles can be in the form of patents, laws, licenses, privileges or quite high production costs.
· Imperfect Information
Sellers and buyers do not have complete information regarding the quality, price and availability of products on the market. Sellers and buyers can speculate about the actions and reactions of their competitors.
· There is government interference
The government can intervene to set prices and regulate production in oligopoly markets to prevent collusion, cartels or other monopolistic practices. The government can also give special permission to sellers to run a business.
Market structure can be known through market concentration, namely the size of the market share owned by a particular company or group of companies. Market structure is related to the degree of competition in the industry which can influence business behavior and market performance.