Differentiating Between Market Structures

In the retail industry, no one can match Wal-Mart. From its humble beginnings as a small discount retailer in Rogers, Arkansas, Wal-Mart has become the largest retailer in the world, with over 11,000 stores in 27 different countries (6, 200 in the US). It is by far, the largest employer in the planet, providing 2.2 million jobs; more than 1.5 million of those job here in the United States. In the past 20 years, not only has Wal-Mart become a power house and an economic force, it has also become a cultural phenomenon. Since day one, it had followed the simple philosophy from founder Sam Walton to always offer customers a larger selection of products at lower prices than they can get anywhere else. That simple and effective strategy helped Wal-Mart in 2013 to earn more than 366 billion dollars worldwide, 275 billion right here in the US.

In the world of economics, market structure is defined as the interconnected characteristics of a market. These characteristics basically determine how agents (buyers and sellers) interact in a particular market, and (based on the number of companies in that industry) the specific manner in which that market is organized. In general, there are four basic types of market structures, perfect competition, monopoly, monopolistic competition, and oligopoly.

Each one of these four structures has its own set of characteristics unique to the specifics of each individual market. For Example, Perfect competition, refers to a theoretical market structure that has no entry obstacles, unlimited amount of buyers and sellers, and possesses a perfectly elastic demand curve. Monopoly refers to a market structure where there is only a single provider of a specific product or service. Monopolistic competition (or competitive market) refers to a market structure with a large number of companies, each with a small piece of the market and slightly differentiated products. Oligopoly refers to market structure that is essentially dominated by a small group of large companies that together control the bulk of the market share.

Taking in consideration the type of industry and the organizational structure of the company, it is safe to say that Wal-Mart’s market structure can be described as oligopoly structure. Wal-Mart is part of a market that is dominated primarily by them and two or three other major retailers; Target, Kmart, Costco, etc. The fact that oligopolistic companies such as Wal-Mart are relatively large compared to the overall market gives them a significant degree of market control. An oligopoly market structure might not have the total control over the supply aspect that we can typically see in a monopoly structure, but its capital is substantially greater than that of a monopolistically competitive company or organization.

In an oligopoly market structure such as Wal-Mart, the actions of each individual company (in that particular market) have the potential of affecting the others. Competition