Classification of Market Structure

On the basis of degree of competition and number of sellers, markets are broadly classified into:

1. Perfect competition
2. Imperfect competition

Imperfect competition includes monopoly, monopolistic competition, oligopoly, duopoly and some special cases like monopsony.

(A) Perfect competition

• Very large number of buyers and sellers.
• Homogeneous (identical) product.
• No individual firm can influence price; a firm is a price taker.
• Free entry and exit of firms.
• Example: Wheat or rice market in a large mandī; share market (approximate).

(B) Monopoly

• Single seller, many buyers.
• No close substitutes for the product.
• Strong control over price; the firm is a price maker.
• Example: Indian Railways on many routes, local water supply board.

(C) Monopolistic competition

• Large number of firms.
• Differentiated products that are close substitutes (brands, quality, and packaging differ).
• Each firm has some control over price due to product differentiation.
• Heavy use of advertisement and selling costs.
• Example: Toothpastes, soaps, restaurants, garments.

(D) Oligopoly

• A few large firms dominate the market.
• A product may be homogeneous (cement, steel) or differentiated (cars, mobiles).
• Firms are interdependent; each firm’s price/output decision affects others.
• Example: Telecom companies, the automobile industry, and the airline industry.​

(E) Duopoly

• Special case of oligopoly with only two dominant firms.
• Each firm closely watches and reacts to the other’s actions.
• Example: Two major cola brands controlling most of a region’s soft drink market.​​

(F) Monopsony

• Single buyer and many sellers.
• The buyer has strong control over the price it pays.
• Important in factor markets (markets for labour or other inputs).​
• Example: One large factory being the main employer in a small town.