The Theory of Market Structures

The Theory of Market Structures analyzes how different environments influence the behavior of businesses and consumers. It classifies markets into four main types: perfect competition, monopoly, monopolistic competition, and oligopoly. In perfect competition, many firms sell identical products, leading to fair prices. A monopoly occurs when a single company dominates, controlling prices. Monopolistic competition features many businesses selling similar but not identical products, allowing for some price control. Oligopoly consists of a few firms that dominate the market, often leading to collaboration on pricing. Understanding these structures helps explain how prices and services vary in different industries.