Basis for Classification of the Market Structure

The factors determining the market structure are as follows:

1. Number of Buyers and Sellers

The volume/number of buyers and sellers in the market of a commodity exercises a great influence on the price of a commodity. If there are a large number of buyers and sellers in the market, then a single buyer or seller cannot influence the price of a commodity. However, if there is one seller of a commodity, such as Railways, then the seller has great control over its price. 

2. Nature of the Commodity

The nature of the commodity has a great impact on the price of the commodity. If a commodity is homogeneous in nature (identical goods such as pen, paper, etc.), then it is sold at a uniform price in the market. If a commodity is heterogeneous in nature (non-identical, totally different goods, such as different toothpaste brands, etc.), then it may be sold at different prices. However, commodities with no close substitutes, such as Railways can charge a higher price from the buyers. 

3. Freedom of Movement of Firms

Freedom in entry and exit of firms results in price stability in the market. However, restrictions on the entry of new firms or exit of the existing ones can lead to the firms influencing the price of goods and services, as they have no fear of competition from other existing or new firms. 

4. Knowledge of Market Conditions

If the buyers and sellers are aware of the market conditions and have full knowledge about them, then the uniform price of goods and services prevails in the market. Whereas, if the buyers and sellers are unaware of the market conditions, then sellers are in a position to charge their customers different prices. 

5. Mobility of Goods and Factors of Production

Free movement of factors of production from one place to another results in a uniform price in the market. However, if the movement of factors of production is not free, then the prices may differ from each other. 

A Market is a place where the exchange of goods takes place. The market is the nervous system of modern economic life where producers and consumers carry out the sale and purchase transactions. The market has a different and wider meaning in economics, as it does not refer to a specific place. In Economics, a Market is a region where the buyers and sellers don’t have to assemble at a specific place for the sale and purchase of goods. Instead, they have to be in contact with each other through any communication means, such as the internet, letters, mail, telephone, etc. 

Market refers to the whole region where buyers and sellers of a commodity are in contact with each other for the purchase and sale of the commodity. 

Key Takeaways:

• Markets can exhibit different structures based on the number of buyers and sellers and the degree of competition. Common structures include perfect competition, monopolistic competition, oligopoly, and monopoly.
• Markets are driven by the forces of supply and demand. Sellers provide goods or services, while buyers demand them.
• In a competitive market, equilibrium occurs when the quantity supplied equals the quantity demanded at a specific price, known as the equilibrium price.
• Markets are considered efficient when they allocate resources to their most valued uses.