Market structures refer to particular market characteristics including the number of companies, substitutability of products, and the ease of entry of new firms (Gottheil, 2013). It is the level and nature of competition for the services and goods in the market. The market structure for any goods is determined by several factors, including the nature and number of buyers, product nature, nature and number of sellers, economies of scale, market entry and exit conditions. The nature and number of sellers influence a market structure as they range from one to very many sellers depending on each type. The market structure also depends on whether the product is differentiated or if it is homogenous. Furthermore, …show more content…
In a monopoly, there are no substitutes for the products sold by the single seller, and it is difficult for any other firm to penetrate the market (Gottheil, 2013). There are three assumptions on which the monopoly theory is founded. The first assumption is that only one seller exists. Thus, the industry consists of one firm. Another assumption is that the entry barriers are extremely high for new companies. Thirdly, the seller offers a product that does not have close substitutes. Consequently, the monopolist company has minimal or no competition. Some of the monopolies include public utilities such as water, gas, and electricity companies (Arnold, …show more content…
It is possible for new companies to gain entry into this market, but it is not as easy as in markets that are perfectly competitive (Gottheil, 2013). The monopolistic competition theory is anchored on several assumptions. One of the assumptions is that the buyers and sellers in the market are many. Furthermore, every company in the industry provides a product that is differentiated to some extent. Some of the product differences between companies include packaging, credit terms, brand name, and location. The third assumption is that entering and leaving the market for new companies is easy. Some of the businesses in monopolistic competition market structures include service stations, retail clothing, restaurants, and computer software (Arnold,