A market is “a group of buyers and sellers of a good or service and the institution or arrangement by which they come together to trade (Hubbard & Obrien 2008, p. 50). Markets are categorized into structures, which places business firms into a classification system based on certain characteristics. A market structure is defined as the organization characteristic of a market (Riley, 2006).
Market structures allow economists to identify how firms are organized, how they compete, how they impact consumer behavior, government entities and other business firms. Some of the features within a market structure are the number of firms, the market share of the largest firms, nature of costs, the degree of integration, and the extent of product differentiation. Monopoly, oligopoly, monopolistic competition and pure competition are the four main market structures. Analyzing each market structure helps to provide viable information necessary for consumers to anticipate, governments to regulate and other businesses to predict possible responses to the overall effects of the economy within a society.
A monopoly assumes three major characteristics one of which is they control one hundred percent of the market place because the single business is the sole producer or seller of a product or service. There are no close substitutes to goods or services in monopolies. This unique situation allows firms in this market to demand higher prices for goods and services since there are no other suppliers that can compete. As the sole supplier a company can alter the price of a product by adjusting the quantity it chooses to supply to the market.
