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Market structures include perfect competition, monopolistic competition, oligopoly, and monopoly

Marketing

Market structures include perfect competition, monopolistic competition, oligopoly, and monopoly. Which does the government get involved in?

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The market structures with government intervention are: monopolistic competition, oligopoly, and monopoly.

  • Perfect competition- In this market structure, there are many buyers and many identical sellers. All the firms in this market charge the same price and the price is freely determined by the forces of demand and supply. Under this type of market structure, there is no government intervention.
  • Monopoly - Under a monopoly market structure, there is only one firm in the market. This firm produces a novel or unique product and faces no competition from other firms. Monopolists have the power to set a high price for their products and thus, the government intervenes to regulate the monopoly power and prevent consumer exploitation.
  • Oligopoly - In an oligopoly market, there are a few large firms that produce either differentiated or identical products. The fact that these firms produce differentiated products means that they have some market power. In addition, an oligopoly may produce a monopoly through collusion (collusive oligopoly, and to avoid this, the government needs to intervene.
  • Monopolistic competition - A monopolistic competitive market structure involves many small firms in the market that produce similar but not identical products. Just like in perfect competition, this market structure has the freedom of entry and exit from the market. In this market, there is inefficiency in production since at the long-run equilibrium, there is creation deadweight loss and also the firms have excess capacity. The government, therefore, intervenes and forces the firms to produce at the socially efficient level of output.