Types of Markets
Product markets refer to the buying and selling of goods and services. This means that producers provide the supply of products and the consumers provide the demand for the goods to be produced.
Factor markets differ from product markets as it deals with the trading of the factors of production. This means that land, labour and capital are bought and sold by households and firms. Consumers will supply their human, natural and capital resources in exchange for income; firms will then act as the demand side and purchase these resources.
A competitive market has a large number of producers within the market, all competing to make profit by selling their goods and services to a large number of consumers.
In competitive markets, firms are 'price-takers' meaning that they have limited marketing power (ability to influence the market price.) This is becuase the relative supply and demand of the market sets the equilibrium price for goods.
Furthermore, due to the large number of sellers, goods are usually very similar between firms and brands. This is known as homogenous products, an example of these goods is McDonald's 'Big Mac' burger and Hungry Jack's 'Big Jack' burger. Lastly, the final feature of competitive markets is how easily they are to access, with limited barriers to enter or exit the market.
Non-competitive markets, also known as imperfect markets, are characterised by the high levels of market power producers have due to limited competing firms.
With less competitors, products are unique to a certain brands, allowing firms to raise the prices, as well as, make it difficult for competitors to enter the market with alternative products. There many examples in Australia of imperfect markets. Notably Woolworths and Coles, before Aldi was introduced, were almost the only large grocery chains in Australia. As there was limited competitors or alternatives, Woolies and Coles had the market power to set prices extremely high in order to receive large profits.
A Monopoly market is an example of an extremely uncompetitive market. This market type exists when there is only one producer of a certain product which enables the firm to raise the prices and gain high levels of market power, as there is no alternatives for buyers to access the goods.
It is the governments policy to reduce the numbers of monopolic markets. However, an example of a natural monopoly in Western Australia, is Western Power. This is an exception to government policy as it is necessary to have powerlines under the same company to ensure continuity between systems and wires. However, Western Power is under restriction and supervision to ensure consumers are not exploited, otherwise, this would be an extremely dangerous situation for consumers.