Market Structure

LO3: Understanding the behavior of organizations in their market environment
3.1 Explain how market structures determine the pricing and output decisions of businesses

Market structure can be defined as a “set of buyers and sellers, which decided the price of goods and services. The basis of market structure is the influence the behaviour which results in the firms working in that particular market”. (www.policonomics.com, 2014)
The main areas of these structures are: perfect competition, monopoly, oligopoly and monopolistic competition.

(Economicsonline, n.d.)

On one end of the scale we have perfect competition: when there are many buyers and sellers in the market, all goods are homogeneous, there is perfect knowledge in the market for both producers and consumers, there is perfect mobility and there are no barriers to enter or exit the market. All prices of the homogenous goods would be set at one price and is determined by the demand and supply of the market. The output of a firm is only a small proportion of the total output and each consumer buys small part of the total. No producer, supplier or consumer has the power to influence the price in the market due to the amount of competition in the market. On the other end of the scale there is monopoly where a single producer supplies the whole market, they have power of the market can influence the supply and price due to the lack of competition in the market. They can’t influence demand however when the demand goes up they have the full power to change the price of the goods.
In reality the two above structures are unrealistic in the real world, however companies can take on characteristics of monopolies like petrol stations at night when 99% of shops are closed. One of t...

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...sinesses, they are able to enforce their rights in a more effective manner across borders. The free movement of goods have given them a more open market to trade in, open the way to reach a wider market and given a chance for more economic growth within business which has led to to economic growth within the UK as a whole.
Competition Policy: This is a policy that puts businesses under pressure to ensure they offer the best range of goods at competitive prices. They do this by monitoring the arrangements between companies that restrict competition. Monitoring the abuse of dominant position, such as when the EU blocked Ryanair plans to take over Aer Lingus back in 2006. As combining the two airlines would have created a monopoly on 35 routes to or from Ireland resulting in less consumer choice and the likely hood of cost rising according to (European Commision, 2012)