When we examine the types of business structures we are looking at the competition in the market that the business operates within. There are four types of market based on the competition:
1. Monopoly 2. Oligopoly 3. Monopolistic Competition 4. Perfect Competition
A firm can be called a monopoly if they are the sole supplier to a market place or its market share is more than 25%. Monopolies are capable of influencing the whole market regarding influencing the price or deciding on the quantity that is supplied. They don`t have to worry about competition. They can set the price and let demand follow the price. They also work hard to prevent a rise in competition. Examples of worldwide monopolies are Microsoft, Intel, and Apple. In Northern Ireland Power NI, Phoenix, BT and Sky are the companies regarded as monopolies. Oligopoly is the main form of business in the UK. It occurs when a few companies dominate the market place.
There is a high level of interdependence between the firms, which means that their prices depend highly on the pricing of the competition, meaning that they have a kind of agreement when it comes to pricing. Examples of oligopolies can be found in banking, food retailing, petrol retailing and financial services, newspapers and cigarette manufactu8rers. They are trying to compete with each other mainly on product differentiation, advertising and providing better quality service. Monopolistic Competition occurs when there are several companies are selling the same product with small differences.
The products are essentially the same apart from the brand name, packaging and promotional styles. Typically no brand nominates the market and none of the firms influences the price in the market. There is a big competition between the brands; there is even usually a surplus of companies trying to compete with each other. The total output of these firms is bigger than the demand by consumers and that is why the companies are trying to compete with each other not only by services but on pricing as well.
This type of market structure is found in hairdressing, computer games, book publishing, snack food, biscuits etc. Perfect competition means, that there are a large number of firms competing with each other on price. The products are homogenous, there is no branding involved. Only the most efficient company can survive in this type of market. All the companies have equal access to resources for example factor inputs or technology. There are no barriers entering this market for the firms and they can leave the market as well any time they want. In this market consumers have perfect knowledge of the pricing in the market.