Market structures are the divisions of a market based on how the market’s firms operate and how the system in specific countries dictates the need. A market structure can be a perfect market; monopoly, oligopoly, and monopolistic competition dominate modern market structures. These market structures differ in their characteristics, with some being similar and others not. As a result, it is critical to understand the various elements of these market structures’ local contexts in Jamaica and the international market, including the United States and Canada.
Perfect Market
A perfect market is a market structure where many small firms produce similar products. The market is competitive since there are no obstacles to entry or leave, and all businesses have perfect pricing and technical knowledge. According to Kidd (2022), firms in perfect competition are price takers; they have no control over the market price of their products. The combination between supply and demand determines the market price. In a perfectly competitive market, each business provides a homogenous product. This situation means that each company’s product is the same as every other product on the market.
There are numerous buyers and sellers in the market, and each business has a relatively small market share. Since there are many firms in the market, each one has a minimal effect on the market price. Perfect competition results in a market that is allocatively efficient (Kidd, 2022). This means that the market allocates resources to the production of an item or service in such a way that the entire welfare of society is maximized. Firms are driven to create output where marginal cost equals marginal income in a competitive market. The reason is that businesses want to maximize their profits. There is no deadweight loss in fully competitive marketplaces, indicating that the market is at peak efficiency.
Perfect competition is sometimes cited as an academic standard against which other market arrangements are measured. However, it is vital to remember that perfect competition is a theoretical ideal that does not occur in reality. There are several causes for this. First, having a market with many small enterprises offering a homogenous product is quite challenging. It is also difficult for buyers and sellers to have complete information. Under this structure, businesses have free access and the ability to leave the market (Shaikh, 2017). Economists may utilize perfect competition to understand better how real-world markets operate.
Monopoly
A monopoly is a market structure in which a single company dominates the market for a particular item or service. The monopolist is the only seller in the market and can charge any price it wants. Monopolies are distinguished by high entry barriers preventing other enterprises from joining the market and competing with monopolists. According to Stackelberg (2017), there are two entry obstacles: structural and natural. Natural barriers emerge from the inherent features of the good or service provided, whereas structural barriers are created by government regulation. Tariffs, quotas, and licensing requirements are the most frequent structural barriers to entry.
Tariffs are levies levied on imported commodities, whereas quotas limit the number of goods imported. Licensing requirements are government-imposed rules requiring businesses to obtain a license before operating. Natural entry barriers can also take numerous forms. The most common is economies of scale, which refers to larger enterprises’ cost advantage over smaller firms. This benefit stems from the fact that larger enterprises may spread their fixed costs across a larger output volume, resulting in a lower average cost per output unit (Stackelberg, 2017). Product differentiation is another common natural barrier to entry. This is the process through which firms create products that are seen as distinct and distinct from those of other firms. Product differences can take various forms, but brand loyalty is the most typical.
In a monopoly market structure, the firm is the only seller of the good or service and therefore has complete control over the price. The monopolist will set the price so that it maximizes profits. The gap between this price and the price that would prevail in a competitive market is known as the monopoly price (Gans, 2022). The monopolist will also produce less production than a competitive market would. The discrepancy is referred to as the deadweight loss. The deadweight loss is the reduction in welfare caused by the monopolist’s decision to limit output to raise prices.
Monopolistic
A monopolistic competition is a market system in which many enterprises compete against one another, but each firm holds a tiny market share. The essential characteristics of monopolistic competition are the presence of several firms, the uniqueness of each firm’s product, and the freedom of market entry and departure. Monopolies have many firms in the market; this is in contrast to a monopoly.
According to Sugiarto (2019), numerous enterprises can exist in a monopolistic market without substantial entry barriers. Thus, new enterprises can quickly enter the market and sell differentiated products. Another essential element of monopolistic competition is that firms offer differentiated products. This distinction can take numerous forms, including separate brand names, packaging, and product characteristics. Since customers believe the items to be imperfect replacements, the distinction lends each firm some market power. Finally, there is no restriction on access or exit (Sugiarto, 2019). In contrast to a monopoly, where substantial obstacles to entry may prohibit new enterprises from joining the market, a monopoly lacks entry barriers.
Oligopoly
Oligopoly market systems are distinguished by several characteristics, including the presence of a limited number of enterprises. According to Barker (2019), Oligopoly market arrangements are dominated by a limited number of major enterprises. Typically, a few companies control most of the market share, with high barriers to entry being common. The reason is that there are so few companies in the industry, making it difficult for new companies to enter and compete. Entrance barriers, such as high startup costs or the need for specialized technologies, are frequently substantial entry barriers. The firms in an oligopoly market structure are interdependent; their decisions influence one another. For instance, if one company raises its pricing, other companies may need to do the same to remain competitive (Barker, 2019).
Additionally, non-price competition exists because, in an oligopoly market, firms frequently compete on factors other than price, including promotion, product quality, and customer service. Lastly, informal agreements exist between the firms in the market due to the interdependence of enterprises in an oligopoly market structure.
Local And International Examples of Each Market Structure
Locally, Jamaica is an island that covers all four market structures discussed. The country has a monopoly, perfect competition, oligopoly, and monopolistic market structure. According to Igbinovia et al. (2017), electricity transmission in Jamaica is an excellent example of a monopoly where only one state-owned firm transmits electricity in the region. The electricity company has all the characteristics of a monopoly where it sells and distributes power with sole responsibility for determining the market price.
The agriculture sector market in Jamaica is an excellent illustration of a perfectly competitive market. The market for freshly harvested fruits and vegetables is highly cutthroat. According to Selvaraju (2017), in Jamaica, farmers sell high-quality goods at affordable prices to maintain their market share and remain profitable in the face of intense competition. The Jamaican fruit and vegetable market remains exceptionally efficient due to the persistent effort to innovate and improve. This situation enables customers to choose from a broad choice of reasonably priced, high-quality products.
Jamaica’s tourism industry is an excellent illustration of monopolistic competition. Numerous hotels and resorts are fighting for business, but each offers a slightly different product (Stuart & Shipley, 2017). This situation means that no hotel or resort has a perfect counterpart, giving each one some market strength. Jamaica has many tourist attractions, from beaches to mountains to historical sites. This situation provides travelers with a wide range of options for spending their time, and each attraction has its selling appeal. Prices are frequently highly competitive, with frequent specials and reductions. Because of the high competition, each firm must work hard to differentiate itself from competitors to attract and retain clients.
The Jamaican market is dominated by a few extensive communication and mobile services firms: JamiTel and Digicel. These companies have a substantial market share and can influence prices (Alothman&Alqahtani, 2020). In Jamaica, there is limited competition, and the dominant corporations may maintain prices high. This phenomenon might be a problem for customers because they have few options and must pay expensive pricing.
USA and Canada
The United States and Canada’s international monopoly market structure is exemplified by companies such as Google, Facebook, and Amazon. These businesses have a significant market share in the industries in which they compete, and they hold a dominant position in the markets in which they operate (Park & Hong, 2019). These businesses can keep their dominant position because of their scale, the widespread recognition of their brands, and the dedication of their consumer base.
Companies operating in a market structure characterized by perfect competition are often relatively tiny and offer products that are identical to one another. Small businesses in the United States of America and Canada, such as coffee shops, bakeries, and grocery stores, are good examples of firms that operate in a market system characterized by perfect competition (Barca, 2017). A good illustration of this may be seen in the fast-food sector, which includes such well-known brands as KFC, McDonald’s, and Burger King.
The United States of America and Canada have industries susceptible to international monopolistic competition, one of which is the automotive industry. According to Khan et al. (2022), only a handful of substantial companies control the market in this sector, including; General Motors, Ford, and Chrysler in the United States and Toyota, Honda, and Nissan in Canada. These companies are headquartered in their respective countries. On the other hand, a significant number of smaller car companies compete in these markets.
Oligopoly is the situation that exists in the markets for soft drinks in the United States and Canada. According to Severová et al. (2017), Pepsi and Coca-Cola are the two companies that dominate the market the most. These two companies hold a sizable portion of the market, while their number of rivals is relatively low. They are in direct competition for market share, although they work together in specific capacities. For instance, the two agreed that their respective products could not be sold in vending machines located within educational institutions.
References
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