The economy is a very complex science because of the many factors that influence it and, therefore, end up affecting us. The economy always looks for the best possible model, trying to find the perfect market, thereby analyzing the different market competencies. To understand all this, in this article, we are going to talk about the different types of market competition.
What is the market competition?
Competition refers to the existence of companies or people that sell products to a series of consumers, who buy the products depending on their needs and tastes. With the exception of imperfect markets, one can speak of the existence of a large number of sellers and a large number of consumers.
In a competition, entrepreneurs are free to offer all the legal goods and services they want and can, and consumers are free to choose the product that meets their needs, within their economic capabilities. In competition, the government does not intervene in the actions of companies, and there is a free competition, so everything is modified through a series of economic theories.
Competition can be mainly of two types: perfect competition and imperfect competition:
- The perfect is what happens when the intentions of the market competition are fulfilled
- While the imperfect happens when a series of factors break individual freedom in a market.
Within both competencies, numerous subtypes can arise, as we will see in later sections.
Characteristics of perfect competition
To continue with this article on the different types of market competition, we must talk about the two types and the divisions that exist. Let’s first talk about perfect competition.
Perfect competition is a market in which companies do not have the power to modify the price at will, being the law of supply and demand that gives value to the products. For there to be perfect competition, there must be a large number of sellers and consumers, so that there is a great variety of choices and no one can totally influence the price.
For there to be perfect competition, a series of vital conditions must appear, some of which are the following:
- Existence of many producers and consumers.
- Companies must sell a similar product, with very few differences.
- Market transparency.
- The market should not have entry or exit barriers.
Characteristics and types of imperfect competition
When the conditions mentioned in perfect competition do not occur, a failure is created in the market, causing the appearance of imperfect competition. In these cases, there is no law of supply and demand, so prices are freely modified by the economic agents that have the influence.
There can be many different imperfect competencies, depending on different factors. Some types of imperfect competition are as follows:
Monopoly
The monopoly is the best known of all types of imperfect competition. In this case, the product is only sold by one producer, so he has total control over the market and can modify prices as he wants, without being influenced by the law of supply and demand. One possibility of a monopoly is that the company owns the full patent for a product, and therefore no one else can produce that product.
In some cases, there are a series of state monopolies, sectors in which the government has total control, and cedes them to a single company for their management, with a monopoly defended by the state.
Oligopoly
In the oligopoly, the product is sold by a small group of sellers, who on occasions have agreed to reduce the competition that arises, creating entry barriers. In this type of competition, prices do not usually follow the law of supply and demand, causing high costs for consumers.
Monopsony
It is a type of market in which there is only one buyer, so the plaintiff chooses the price of the product since it has a greater influence than the producers.
Oligopsony
It is a type of market in which there are only a few buyers, so they have power over the cost, and can change the amount of products that are produced.
