Basic Market Models

The market economy has a complex structure, it includes many production, financial, commercial and information components that interact with each other on the basis of legal norms of doing business.

The market, in itself, is an organized structure that includes producers and consumers selling and buying goods and services. As a result of this interaction of the parties, market prices are established and optimum sales volume needs are generated.

The structure of the market depends, first of all, on the number of sellers and consumers who participate in commodity-money exchange. Their relations determine the nature of the relationship in the market of supply and demand and generate different models of the market.

The essence of the market is manifested, mainly through such a concept as competition. It is the center of gravity in the system of market economy. Competition in the market plays the role of an accelerator of processes and stimulation of better supply of goods to markets. The main market models and their characteristics are given below.

The following main market models stand out.

The market of perfect competition (polypolia). With a large number of independent producers of the same kind of goods and the mass of individual consumers of goods, the structure of the market is such that consumers are able to buy goods from any producers, based on personal preferences. Producers, in turn, have the opportunity to sell goods to any buyer, based on their benefits. In such a situation, consumers do not have a special share in total demand.

In the case of a polypol, changes in the prices of one seller cause a reaction only in the environment of buyers, and not other sellers. With this model of the market, it is open to everyone, the price is the amount given, so the participants are forced to accept it.

Perfect competition is determined by such prerequisites: the inability of individual sellers and buyers to seriously influence the market situation, the absence of barriers to entry of new players to the market, the absence of price, supply and demand restrictions, free access to information on the main characteristics of the market.

Market imperfect competition (oligopoly). Such a market is characterized by a very large number of consumers and a fairly limited number of manufacturers, which even individually can meet a significant share of total demand.

In the situation of the limiting structure of this market, when a huge number of consumers are confronted by one producer, the market turns into a monopoly. With such a market model as a monopoly, one seller acts as the producer of a product that does not have substitute goods. Due to this, the monopolist gains market power and the possibility of full control over prices.

If a fairly large number of manufacturers coexist on the market, ready to supply heterogeneous products, then it is called the market of monopolistic competition.

Monopolistic competition as a model of the market is characterized by a large number of producers of similar, but not identical products. Since there is a differentiation of products, firms enter into battle with each other through prices, and also with the help of even greater differentiation of goods. Monopolistic competition is characterized by the heterogeneity of goods on the market, the lack of complete market transparency, the desire of producers to individualize their products.

A special type of imperfect competition (monopsony). This market is characterized by the presence on it of a single consumer and a large number of independent producers. The consumer can purchase the entire volume of the proposed product, supplied by all manufacturers operating in the market.

The relationship between producers and buyers, when a single consumer corresponds to a single seller, is called a two-way monopoly and, in fact, is not a market (competitive) relationship at all.