Let’s take a look at the seven main types of market forms.
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.