There are several different types of market structure which dictate the degree of risk to business operations. For example, the market structure determines the amount of power and competition in the market. A business will need to understand its market structure in order to plan startegically and operationally.

Perfect Competition:

Imagine a marketplace where there are many sellers and buyers, and they're all selling and buying the same thing. This is perfect competition, like a farmers' market with many identical fruits and vegetables.

Example: Think of a market where many farmers sell the same type of apples. No farmer can set a higher price because buyers can easily switch to another farmer selling the same apples.

Imperfect Competition:

In imperfect competition, things are a bit different. There might be fewer sellers, and they could sell slightly different products or control prices more.

Example: Consider the smartphone market. There are a few major brands selling different types of smartphones with varying features and prices. This is not perfect competition because the products are not identical.

Perfect Competition Case Study: Local Farmers' Market

In a small town, there's a local farmers' market where multiple farmers sell identical fruits and vegetables. This scenario represents perfect competition. Each farmer offers the same produce, and buyers have many options to choose from. Here's how this case study illustrates perfect competition:

Number of Firms: There are numerous farmers, each selling the same types of fruits and vegetables.

Freedom of Entry: New farmers can easily join the market, set up their stalls, and start selling.

Nature of Product: The products (fruits and vegetables) are homogeneous and indistinguishable from one another.

Price Determination: The price of each fruit or vegetable is determined by the overall market demand and supply. Individual farmers have no control over prices.

Examples: If one farmer tries to charge higher prices for apples, buyers can easily switch to another farmer selling the same apples at a lower price. Farmers can't differentiate their products, so price becomes a major deciding factor for buyers.

Imperfect Competition Case Study: Smartphone Market

In the smartphone market, there are several brands like Apple, Samsung, and Google, each offering different features and designs. This situation represents imperfect competition. While not all features are the same, consumers perceive differences among the products. Here's how this case study illustrates imperfect competition:

Number of Firms: There are a few major brands dominating the market, with each having a significant share.

Freedom of Entry: While entry is possible, the high costs of research, development, and marketing make it difficult for new players to compete.

Nature of Product: Smartphones from different brands have unique features, designs, and technologies, making them distinct from one another.

Price Determination: Companies have some control over pricing due to brand loyalty and product differentiation.

Examples: Apple iPhones are known for their ecosystem and unique features, while Samsung's Galaxy series stands out with its diverse lineup. Consumers might choose a brand based on factors beyond price, like brand reputation and specific features.

These case studies illustrate the differences between perfect and imperfect competition in different market scenarios.

Summary Table

Perfect Competition       Imperfect Competition                   

Number of sellers:                                   Many                                          Variable 

Barriers to Entry:                                     None                                           Significant

Type of Substitute Products:        None                                            Many

Nature of Competition:                     Price Only                                 Price, Quality etc...

Pricing Power:                                            None                                            Significantly

Features of Different Market Structures

Number of Firms:

• • In a perfect competition, there are many small firms.

  • In imperfect competition, the number of firms can vary, with some markets having a few big firms and others having more firms.

Freedom of Entry:

• • Perfect competition allows easy entry for new businesses to start.

  • In imperfect competition, entry might be more restricted due to factors like high startup costs or limited resources.

Nature of Product:

• • In perfect competition, products are identical, like fruits at a farmers' market.

  • In imperfect competition, products can be differentiated. For example, different car brands offer unique features, making them non-identical.

Remember, understanding these market structures helps businesses and policymakers make decisions about pricing, competition, and market strategies. Different markets have different dynamics, and recognising these differences is important for success in business.