Thus, prices of goods and services are fixed by the elasticity of demand. In other words, the degree of responsiveness of demand to the changes in price determines the worth of a product5. Logically, the higher the price, the lower the quantity demanded and vice versa. Based on this theory, economists identify that there are three types of markets: a perfectly competitive market, a monopoly and an oligopoly6. In a market where there is a single product, a perfectly competitive market will have a large number of buyers and sellers. Buyers and sellers will have access to perfect information.
There will be no barriers to entry and exit of businesses in the production of the product in question. A monopoly is the exact opposite of a perfectly competitive market. Sticking to the core assumption, a monopoly exists where there is one dominant seller of the homogeneous product in question. This single producer might be too dominant or there are some barriers to the entry of other sellers into the industry. Aside a monopoly, there could be the case of an oligopoly where there is a small group of sellers who produce the single product.
An oligopoly might also restrict the entry of other producers except the few in the industry. Each of the three market structures have different implications for consumers. In a perfectly competitive market, a consumer has the best options. This is because prices are set by an interaction of demand and supply. What consumers can afford for a given product is what they tender in. This is because there are many buyers and sellers so if one seller increases the price, consumers will buy from another supplier who sells at a lower price. Where a monopoly exists, producers dictate to consumers.
This is because consumers have no choice but to stick to the dominant producer. In the case of an oligopoly, the case is almost the same. In a perfectly competitive market, consumers get the product at the best price and at the best quality. This is because there are many producers and each producer will have to use the most efficient means of producing. The Role of European Union Law in Ensuring an Perfectly Competitive Market The theory of market structures exists in economics text books.
In reality, there is the need for the intervention of the state and laws to ensure that competitive markets are established and maintained. The European Union established a supranational system that creates a common market for member states and provide a good livelihood for the citizens of the union7 The European Union laws provide a legal system that exists above the national legal structures8.
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