Question

Justify the following statement.

The market can be classified on the basis of competition.

Answer 1

The market is classified on the basis of competition as follows:

1. Perfect market:
   A type of market in which large numbers of buyers and large numbers of sellers exist to buy and sell the homogeneous products at the prevailing market price is called a perfect market. In this market, all buyers and all sellers have equal access to all information and have perfect knowledge about the market conditions. Neither a single buyer nor a single seller can influence the price. One uniform single price prevails in the market. This model of a perfect market is frequently used in economic analysis.
2. Imperfect market:
   A type of market which has distinct features of market imperfection such as a single seller, imperfect knowledge of market conditions on the part of buyers or sellers, failure to make adjustment in demand and supply, etc. is called an imperfect market, e.g. monopoly market.

The imperfect market is further sub-divided into the following categories :

1. Monopoly: The word monopoly is the combination of two words, viz. mono' means one and 'poly means the seller. Accordingly, a market structure that is characterized by a single seller selling a unique product in the market is called a monopoly. In a monopoly, the seller faces no competition as he is the sole seller of goods with no close substitute. He controls the entire supply and enjoys the power of setting the price for his goods. He is a price maker.
2. Duopoly: A market situation in which two suppliers dominate the entire market for a commodity or service. In this market, there are two sellers, who either sell a homogeneous product or differentiated product. They enjoy a monopoly in the product produced and sold by them.
3. Oligopoly: Oligopoly is a state of limited competition in which the market is shared by a limited number (few) of producers or sellers producing and selling either a homogeneous product or a differentiated product.
4. Monopsony: The market situation in which there is only one buyer substantially controls the market as the major and single purchaser of goods and services offered by many producers or sellers, is called a monopsony market, e.g. labor market, a firm is the sole purchaser of a certain kind of labor.