Why Is Market Structure Important

Market structure refers to all elements that may influence the conduct and execution of the organizations working in an industry. The competitiveness of the market shows the degree to which individual firm has power to impact market price or the terms on which its product is sold. The less power an individual firm has to influence the market, the more competitive the market is. In a perfectly competitive market structure, there are numerous organizations such that an individual firm has no power to impact the market. Therefore, every firm must acknowledge the value set by forces of market demand and market supply.

Supply represents the maximum quantities per unit of time that firms will put for sale in the market at various prices. In general,

Therefore, consumer has no reason for preferring the product of one supplier over those of other suppliers. Consumers in this market know the product's way being sold and the cost charged by every firm. All discrepancies in prices quoted by the suppliers will be known instantly, and consumers will purchase at the most minimal price. The effect of any buyer or seller’s decision on the price of the product is insignificant. The output that each firm can give is small relative to total output of the industry such that the firm is a price taker and the adjustment in their output does not have significant effect on the market price of the product. Similarly there is no individual buyer whose purchase is sufficiently vast to impact available on the market price. Prices can move freely to reflect the changing conditions of supply and demand. There is no requirement on the demand for and supply of goods and services. There is a flexibility to enter and exit the industry. Consequently, there is portability of goods and services, and of resources in the economy. New entrants are free to enter any desired industry, and resources are free to move among alternative uses. Goods and services can be sold whenever they have the most elevated price. Resources will move to the employment where they are most generously

Thusly, the firm has the whole market for itself. Cross elasticity of demand between the monopolist’s products is either null or sufficiently little to be neglected by all firms in the economy. At the point when the monopolist makes decision on pricing, it does not consider activities and possible retaliations of firms in other industries. The monopolist can apply some influence on price, output, and demand for its product. The market demand curve set limit for the monopolist’s market. Confronted by a given demand curve, the monopolist can increase sales by bringing down the product price, or increase price in the event that it is willing to restrict its sales