Types of Market Systems
Typesof Market Systems
Typesof Market Systems
Thereare various types of market systems, which include perfectcompetition, monopoly, oligopoly and monopolistic competition. Eachtype of market creates different pricing challenges on thecommodities meant for sale to the consumers (Kotler and Armstrong,2011).
Perfectcompetition is the most common type of market system that ischaracterized by many different sellers and buyers. Economists arguethat in a perfect competition market, there are infinite numbers ofsellers, as well as, the buyers who control the buying and sale ofcommodities. From the definition, it is evident that perfectcompetition market systems have many players such that no singleplayer has the ability to change the existing prices in the market.If a player tries to alter the price, the buyers or sellers willshift to the infinite alternatives available in the same market (AMA,2014). For example, in the market today, most businesses includingsupermarkets and hypermarkets sell sugar packets to many buyerscountrywide. If one buyer decides to lower the price, the buyers willdefinitely shift to other sellers and hence he has no control overthe market price.
Monopolyis another form of market that is believed to be the opposite of theperfect competition. In a market where there is only one producer orseller of a certain good or service, then, the market is said to beunder monopoly control. Note that the good or services has noreasonable substitute and that fact gives the sole producer acompetitive advantage in the market. Mostly, pure monopolies don’tface competition since there are no similar companies in the market(Gaspar, 2006). Therefore, the monopoly is the “price maker” anddoes not consider the forces of demand and supply in the market. Inother words, monopolies poses great pricing challenges since neitherthe government nor the consumers have control over the prevailingmarket prices, which could be high or low.
Oligopolytakes the form of a monopoly only that there are few producers whohave substantial command over the market. They dominate the majorityof the commodities sold in the market. For example, oil companiescould be very few but have significant control over the market.Oligopolies pose pricing challenges in that, without governmentregulations, they can collude and set prices just like the monopoliesdo in making their prices (McEachern, 2012). Collusion of oligopoliesmay bring about the so-called cartels, which set the prices ofcommodities without depending on the forces of the market. To someextent, oligopolies are similar to monopolies in that they can decidethe prices to be charged on certain commodities. The customer in bothforms of market systems is the “price taker.”
Anothercommon form of market is the monopolistic competition, which combinethe elements of perfect competition and a monopoly. There arenumerous players in the market just as the perfectly competitivemarket. Product differentiation is common is monopolisticcompetitions where the involved sellers charge different prices. It,therefore, means that the sellers have the freedom to charge certainprices depending on the quality of their commodities (Gaspar, 2006).In a monopolistic competition form of market, consumers are fed withdifferentiated products that can satisfy their wants and tastes. Theprice challenges posed by this form of a market system are that theconsumer remains subject to the high or low price in the market. Inother words, consumers have little or no control over the prevailingmarket prices.
AmericanMarketing Association. (2014). Typesof Market Systems.Retrieved from: http://www.marketingpower.comon 20thFeb 2015.
Gaspar,J. E. (2006). Introductionto business.Boston, MA: Houghton Mifflin Co.
Kotler,P. and Armstrong, G. (2011). Principlesof Marketing.New York: Pearson Education.
McEachern,W. A. (2012). Economics:A contemporary introduction.Mason, OH: South-Western Cengage Learning