We can see different market structures in different disciplines. However, two concepts of them are very important for managers. First as described in microeconomics and second as practiced in marketing. The characteristics, variables, and dimensions of these structures can help us to evaluate our choices and make strategic decisions for allocation of limited resources.
Interestingly, the concept of a market in microeconomics is less ambiguous than in marketing. Microeconomics offers dozens of market definitions. The primary element of such descriptions is the level of competition in the market. Different levels of competitions create a different kind of structure.
Some structures in microeconomics don't exist according to their book definitions. You can rarely find a perfectly competitive market or a monopoly. But such models and structures help us to understand possible implications of our decisions.
Micro-economics and Marketing structures are not telescopic poles but overlapping.
Microeconomics prefers a broader market structure where different social and economic issues can be discussed regarding competition, demand, supply, utility, costs, etc., keeping all being equal (ceteris paribus). In marketing, the market structure focuses more upon ‘ceteris paribus’ or variables which microeconomics handles a bit casually. It does not mean that microeconomics ignores ‘ceteris paribus’. It merely means that marketing concept of market structure focuses more on horizontal as well as vertical structures for different products. Consequently, this results in different methodologies to describe various structures.
Number of buyers and sellers, substitutability, the ease of entry and exit, and level of competition determine market structure in microeconomics. Difference in these variables helps economists to categorize these structures into different types. They can help the policy makers to formulate policies to rectify market failures. They also help managers to decide what product to be launched and which advertisement can boost a particular brand for maximum returns.
Traditionally, the market structures are classified into four major categories:
1- Perfect Competition (Many sellers of a standardized product)
2- Monopoly (One seller, one product without any substitutability)
3- Monopolistic Competition (Many sellers of a differentiated product)
4- Oligopoly (A few sellers of a standardized or a differentiated product)
There are many other categories of structures in economics. But these major structures are important to understand possible outcome of our business decisions. We can analyze different market actors, motivations and consumer behaviors to achieve our goals.
Everybody experiences market in her daily life. In fact most of us interact in markets for a number of times a day. But it is complex to be defined. That allures us to over simplify the concept with different models.
Robert A. Schwartz says in 'Micro Markets: A Market Structure Approach to Microeconomics Analysis', "Microeconomics theory is just that, it is theory. As such, it may appear to be a highly abstract, overly simplified, unpalatably unrealistic representation of any actual market."
A few definitions of market are given here:
1- “An occasion when people buy and sell goods; the open area or building where they meet to do this.” (Oxford Advanced American Dictionary)
2- “A regular gathering of people for the purchase and sale of provisions, livestock, and other commodities” (Google Dictionary)
3- “A market is defined as a product or group of products and a
geographic area in which it is produced or sold such that a hypothetical
profit-maximizing firm, not subject to price regulation, that was the
only present and future producer or seller of those products in that
area likely would impose at least a "small but significant and
non-transitory" increase in price, assuming the terms of sale of all
other products are held constant.”
(U.S. Department of Justice and the Federal Trade Commission)
4- “A market is any place where the sellers of a particular good or service can meet with the buyers of that goods and service where there is a potential for a transaction to take place. The buyers must have something they can offer in exchange for there to be a potential transaction.” (About.com)
5- “A market is one of many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services (including labor) in exchange for money from buyers. It can be said that a market is the process in which the prices of goods and services are established.” (Wikipedia)
6- “An open place or a covered building where buyers and sellers convene for the sale of goods; a marketplace: a farmers' market.” (Free Dictionary)
7- “a (1) : a meeting together of people for the purpose of trade by private purchase and sale and usually not by auction (2) : the people assembled at such a meeting
b (1) : a public place where a market is held; especially : a place where provisions are sold at wholesale (2) : a retail establishment usually of a specified kind ”
“In marketing, the term market refers to the group of consumers or
organizations that is interested in the product, has the resources to
purchase the product, and is permitted by law and other regulations to
acquire the product.”
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