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Types of market competition

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The economy is a very complex science because of the many factors that influence it and, therefore, end up influencing us. The economy always looks for the best possible model, trying to find the most perfect market, analyzing for that the different market competitions. We are going to talk about the different types of market competition .

The competition refers to the existence of companies or people who sell products to a series of consumers, who buy the products depending on their needs and tastes. With the exception of imperfect markets, one can speak of the existence of a large number of sellers and a large number of consumers.

In a competition, entrepreneurs are free to offer all the goods and legal services they want and can and consumers are free to choose the product that meets their needs, within their economic capabilities. In the competition the government does not intervene in the actions of the companies, existing a free competition , reason why everything is modified by means of a series of economic theories.

Competition can be mainly of two types:perfect competition and imperfect competition:

  • The perfect one is what happens when the intentions of market competition are met
  • While the imperfect happens when a series of factors break individual freedom in a market.

Within both competitions may arise many subtypes, as we will see in later sections.

Characteristics of perfect competition

To continue with this lesson on the different types of market competition we must talk about the two types, and the divisions that exist. First let’s talk about perfect competition .

The perfect competition is a market in which companies have no power to change the price at will, being the law of supply and demand that gives value to the products. For there to be perfect competition there must be a large number of sellers and consumers, so that there is a great variety of election possibilities and nobody can influence the price in a total way.

In order for there to be perfect competition, a series of vital conditions must appear , some of which are the following:

  • Existence of many producers and consumers.
  • Companies must sell a similar product, with very few differences.
  • Market transparency
  • The market should not have barriers to entry or exit.

 

Characteristics and types of imperfect competition

When the conditions mentioned in perfect competition do not happen, a failure in the market is created , causing the appearance of imperfect competition. In these cases there is no law of supply and demand , so the prices are freely modified by the economic agents that have the influence.

There may be many different imperfect competencies, depending on different factors. Some types of imperfect competition are the following:

Monopoly

The monopoly is the best known of all types of imperfect competition. In this case the product is only sold by a producer, so it has total control over the market and can modify the prices as it wants, without being influenced by the law of supply and demand. One possibility of monopoly is that the company owns the total patent for a product, and therefore no one else can produce that product.

In some cases there is a series of monopolies of the State, sectors in which the government has total control, and transfers them to a single company for its management, there being a monopoly defended by the State.

Oligopoly

In the oligopoly, the product is sold by a small group of sellers, who have sometimes agreed to reduce the competition that arises, creating entry barriers. In this type of competition, prices do not usually follow the law of supply and the demand, causing high costs for consumers.

Monopsony

It is a type of market in which there is only one buyer, so the price of the product is chosen by the plaintiff, since it has a greater influence than the producers.

Oligopoly

It is a type of market in which there are only a few buyers, so they have the power over the cost, and can change the amount of products that are produced.

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