The Four Basic Market Models

This unit, we have been examining several different firms and the industries which they are a part of. We have not only seen that every firm is different, but we have also seen that the industries that they are each involved in are also different. Industries vary based off several characteristics, for example: the number of firms, type of product, price control, and difficulty of entrance. The four basic market models, which we have looked at in class, are pure competition, monopolistic competition, oligopoly, and pure monopoly.

Pure competition is characterized by a very large number of firms, standardized products, no price control, and very easy entry or exit into the industry. Pure competition is very rare in the real world, but we can study its abstract theory to better understand market models. The example of pure competition that we looked at was YouTubers who uploaded Minecraft videos. There are a very large number of these YouTubers, they all post relatively the same videos, and it is very easy to enter or exit the industry.

Monopolistic competition typically has many sellers, but not a very large amount. Products in monopolistic competition are often differentiated, and firms have slight control over the price. Entry and exit into the industry are relatively easy but more difficult than pure competition. A general example of the monopolistic competition is the restaurant industry.

Oligopoly tends to have a few firms, either standardized or differentiated products, with limited price control (though considerable via collusion,) and significant obstacles to entry or exit the industry. The example of oligopoly that we examined was the auto industry in the mid-1900's. GM, Ford, and Chrysler pretty much made up the entire industry, and it was difficult for other cars to enter.

Pure monopoly is characterized by a single firm dominating an entire industry. Very rarely do we actually see pure monopoly, as governments tend to discourage it with anti-trust laws. In pure monopoly, the product has no close substitutes, there is considerable price control, and it is nearly impossible to enter the industry. One example of pure monopoly today is Google, however, it is not a perfect example as it does technically have some competitors. However, because of its unmatched reach into so many industries, many people view it as a monopoly.