The first is perfect competition. This is when you have many producers of essentially the same product. There’s competition between the companies as each tries to produce a better quality product at a lower price.
Monopolistic competition is similar to perfect competition. It’s when you have many producers that have a product, but each company only has a small market share of the products on the market. There could be many companies producing widgets, but Company A only produces 5% of the widgets on the market.
A monopoly is when there is only one producer of a product. The producer can raise the price of the product very high because if a consumer wants to buy that product, they have to buy it from that one producer.
A monopsony is when there’s only one buyer of a product. An example of this is military equipment. There is some military equipment that is produced that the US government is the only buyer of. In the case of a monopsony, the producer must make sure they are producing something the buyer wants, because if the buyer stops purchasing their product, they are going to be out of business.
A natural monopoly is when there’s only one producer of a product, like in a monopoly, but in this case, due to economies of scale, the efficiency of the product goes up with the more products that are produced.
An oligopoly and oligopsony are similar to a monopoly and a monopsony, just not as extreme. In an oligopoly, there are few producers of a product. Instead of there just being one producer of a product in a monopoly, there are a few. In an oligopoly, there are several buyers of a product. All of those buyers still have a lot of control over what kind of product the producers make.
That’s a brief look at the seven main types of market forms.