Economists assume there are a number of different buyers and sellers in the marketplace. This means that we have competition in the market, allowing for changes in price with changes in demand and supply. Furthermore, for almost every product, there are substitutes, so if one product becomes too expensive, a buyer can choose a cheaper substitute instead. In a market with many buyers and sellers, both the consumer and supplier have equal ability to influence price.
In some industries, there are no substitutes and there is no competition. In a market that has only one or few suppliers of a good or service, the producer(s) can control price, meaning that a consumer does not have choice, cannot maximize his or her total utility, and has have very little influence over price.
A monopoly is a market structure in which there is either only one producer/seller for a product. In other words, the single business IS the industry. Entry into such a market is restricted due to high costs or other impediments, which may be economic, social, or political—for instance, a government can create a monopoly over an industry that it wants to control, such as electricity. Another cause for barrier against entry into a monopolistic is an entity's exclusive rights over a natural resource. For example in Saudi Arabia, the government has sole control over the oil industry. A monopoly may also form when a company has a copyright or patent that prevents others from entering the market. Pfizer, for instance, had a patent over Viagra.
In a market structure of an oligopoly there are only a few firms that make up an industry. The few firms making up the industry have control over the price, and, like a monopoly, an oligopoly has high barriers to entry. The products are almost identical and thus the companies, competing for market share, are interdependent via market forces. If, for example, an economy needs only 100 widgets but Company X produces 50 and its competitor, Company Y, produces the other 50, the prices of the two brands will be interdependent upon one another and therefore similar. So, if Company X starts selling the widgets for cheaper, it will get a greater market share and force Company Y also to sell for cheaper.
The two extreme forms of market structure are a monopoly on one end, and perfect competition on the other. Perfect competition is characterized by many buyers and sellers, and many products that are similar in nature and hence many substitutes. Perfect competition means there are few if any barriers to entry for companies, and prices are determined by supply and demand. Thus, producers in a perfectly competitive market are subject to the prices determined by the market and do not have any leverage . For example, in a perfectly competitive market, should one single firm decide to increase its selling price of a good, the consumers can just to turn to the nearest competitor for a better price, and the firm that increased its prices would be losing market share and profits.
