In Economics, we tend to think of "best" as synonymous with "most efficient." There are many different types of efficiency, but the most important of them are allocative and productive efficiency, since they indicate the degree to which goods and services are produced and sold at the lowest possible price. Intuitively, perfectly competitive markets seem the best equipped to manage this, since, in the long run, the absence of firms with market power and the availability of perfect information mean that price equals marginal cost (the condition for allocative efficiency) and production is capped at the point where average total cost is at its lowest (the condition for productive efficiency). However, the assumptions of perfect competition, such as perfect information and complete absence of barriers to entry, are unrealistic. Furthermore, whilst monopolistic markets are neither allocatively nor productively efficient, their firms often benefit from economies of scale, since their privileged positions allow them to increase their size. This can shift their cost curves downwards, allowing them to produce and sell their product at lower prices than their perfectly competitive counterparts. Therefore, whilst monopolistic markets remain allocatively and productively inefficient in absolute terms, they can be relatively more efficient than others, if they take advantage of their economies of scale. (I would only target this ata fairly advanced student, as it is higher level analysis / evaluation.)
FAQs
What is the best market structure? ›
Answer and Explanation:
What market structure is the best? ›Key Takeaways. Perfect competition is an ideal type of market structure where all producers and consumers have full and symmetric information and no transaction costs.
What is a perfect market structure? ›Perfect competition is a hypothetical market structure in which there are very many firms, each of which represents an infinitesimal share of the market. In a perfectly competitive market, if any firm is able to earn an economic profit, other firms will immediately enter the market, driving economic profit to zero.
What is the most advantageous market structure? ›Intuitively, perfectly competitive markets seem the best equipped to manage this, since, in the long run, the absence of firms with market power and the availability of perfect information mean that price equals marginal cost (the condition for allocative efficiency) and production is capped at the point where average ...
Which market structure is most beneficial to consumers Why? ›Answer and Explanation: Perfect competition is the most beneficial to consumers because the market type is characterized by many different buyers and sellers.
Why oligopoly is the best market structure? ›Advantages. One of the main benefits of having an oligopoly is that competition is very limited. That's because there are very few players in the market. Since there are few competitors, an oligopoly allows those who participate to net a higher amount of profits.
What is the most realistic market structure? ›1] Perfect Competiton
In a perfect competition market structure, there are a large number of buyers and sellers. All the sellers of the market are small sellers in competition with each other. There is no one big seller with any significant influence on the market. So all the firms in such a market are price takers.
The most preferred market structure by producers is monopoly/oligopoly because they offer the highest pricing power. The most preferred market structure by consumers is perfect competition as prices are lower.
What is the hardest market structure? ›A monopoly is the most challenging market to enter. Below is the source of monopoly power which makes it difficult for other firms to enter; Legal barriers. For example, a company may patent its product to protect its self from competitors for a given period.
What is the most advantageous market? ›The most advantageous market is the market that maximizes the amount that would be received to sell the asset or minimizes the amount that would be paid to transfer the liability, after taking into account transaction costs and transportation costs.
Which type of market is best? ›
Perfectly Competitive Market – The perfectly competitive market is hypothetical. In this type of market, all the products are hom*ogeneous, and there are no barriers to entering the market. There are many buyers and sellers where no individual buyer or seller can affect prices.
Why is the perfect market the most efficient market structure? ›Perfect competition is both allocatively efficient, because price equals marginal cost, and productive efficient, because firms produce at the lowest point on the average cost curve. It is also x-efficient because competition between firms will act as an incentive to increase efficiency.
What are the 4 types of market structure? ›Economic market structures can be grouped into four categories: perfect competition, monopolistic competition, oligopoly, and monopoly. The categories differ because of the following characteristics: The number of producers is many in perfect and monopolistic competition, few in oligopoly, and one in monopoly.
Which is better, monopoly or oligopoly? ›A monopolistic market may quote high prices. Since there is no other competitor to fear from, the sellers will use their status of dominance and maximize their profits. Oligopoly markets on the other hand, ensure competitive hence fair prices for the consumer.
Which is most competitive market structure? ›The correct sequence of the market structure from most to least competitive is perfect competition, imperfect competition, oligopoly and pure monopoly.