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11 Mar 2025
5 Min Read
Afrina Arfa (Alumni Columnist), Nellie Chan (Editor)
Ever stood in the dairy aisle and wondered why some cartons cost more than others? It's not just about the milk—it's about the market shaping what we pay!
Every day, global trade makes headlines. Terms like 'tariffs', 'international trade agreements', and 'supply chain disruptions' dominate discussions, yet many of us struggle to grasp what they mean—or what they mean for us. To see the bigger picture, we first need to zoom in on the foundational forces shaping it. At the heart of global trade are market structures—frameworks that outline how businesses operate, compete, and set prices. Understanding these structures is key to unlocking a clearer perspective on global trade and its impact on businesses, industries, economies—and our daily lives.
Global trade—what's that?
It's the buying (importing) and selling (exporting) of goods and services across international borders, also known as international trade.
Picture walking into a grocery store to buy a carton of milk. Instead of an easy decision, you're met with multiple brands competing for your purchase—each presenting different prices, qualities, and even non-dairy alternatives. You weigh your options: the most affordable, the best value for money, or perhaps the highest quality. Now, picture another scenario—only one brand is available. You'd have no option but to buy that carton, regardless of price, quality, or personal preference. This contrast is the result of different market structures.
Market structures refer to how industries are classified and differentiated based on the degree and nature of competition for goods and services. They influence everything from prices and product quality to availability and trade policies. Some markets are more competitive, offering consumers plenty of choices (like the first milk scenario), while others are less competitive, limiting those choices (like the second). While governments don't directly regulate market structures, they affect them through policies, taxes, and regulations—ensuring fair competition, preventing monopolies, and supporting economic stability. However, this doesn't make all markets the same.
Trade policies—what's that?
They're the rules, regulations, and standards set by governments to govern global trade, including imports and exports.
A monopoly is a market structure in which a single firm dominates an industry, controlling the production, distribution, and sale of a good or service. This is often seen in essential industries like water, electricity, or natural gas. In a monopoly, competition is limited or eliminated, allowing the firm to set prices (whether higher or lower) without worrying about losing customers to competitors. Monopolies also benefit from economies of scale, meaning they can produce large quantities at a lower cost per unit. However, this doesn't always translate to lower costs for customers.
Take Microsoft in the late 1990s and early 2000s, for example. At that time, it dominated the global personal computer (PC) operating system market with Windows and the productivity software market with Microsoft Office. This dominance meant that price changes, product updates, and new offerings had a global impact—especially in developing countries, where alternatives were often inaccessible or unaffordable.
Firm—what's that?
It's a business that sells goods or services, from small local shops to large global corporations.
While a monopoly involves one firm, an oligopoly includes a few firms that hold most of the market share, dominating the industry and leaving limited room for competition. Though these firms maintain significant influence, their actions are often constrained by the need to consider their competitors' reactions. A unique feature of oligopolies is that the firms can collude, meaning they work together to control production, distribution, and sales, effectively behaving like a monopoly to maximise their joint profits—often at the expense of their customers. Globally, such practices can disrupt trade, causing price disparities and supply imbalances.
An excellent example of an oligopoly in the tech industry is the smartphone market, where firms like Apple, Samsung, and Huawei dominate. These firms hold a large global market share, shaping the manufacturing, pricing, and marketing of the devices that billions of people rely on daily for communication, work, and entertainment.
Market share—what's that?
It's the percentage of total sales in an industry that a business accounts for, showing its relative size compared to competitors.
Perfect competition represents the ideal market structure, where multiple firms sell identical goods or services. Prices are set solely by the forces of supply and demand, with no single firm having the power to influence them. Since there are no barriers to entry or exit, new firms can freely join or leave the market, ensuring a constant flow of competition.
An example that comes close to perfect competition is the agricultural market, particularly in the global trade of crops such as corn, wheat, and rice. Farmers worldwide compete to sell nearly identical crops, meaning individual farmers have minimal influence over pricing. If a major agricultural exporter, like the United States, increases its supply of corn, the global prices for that crop would likely drop—advantaging importers but potentially disadvantaging farmers by cutting into their earnings. However, real-world factors like subsidies and trade regulations mean that agricultural markets aren't perfectly competitive, though they reflect many traits of the market structure.
Trade regulations—what's that?
They're the rules that enforce trade policies, setting standards for how businesses operate in local and global markets.
Monopolistic competition sits between monopoly and perfect competition, where multiple firms sell similar but not identical goods or services. Products compete within the same market but differ in characteristics like design, features, or quality, giving firms some influence over pricing. This market structure is common in industries like fast food, clothing, and cosmetics, where products are differentiated largely by brands.
For example, in the global coffee market, brands like Starbucks, Coffee Bean, and Costa Coffee all sell coffee, but each distinguishes itself through its premium ingredients, signature recipes, and curated in-store ambience. This offers consumers a range of options: they can choose a global brand like Starbucks, a local brand like ZUS Coffee, or an independent café. With so many competitors, firms must strike a balance between competitive pricing and added value. Larger firms with more resources can invest in innovation to stay relevant, which can challenge smaller firms that lack the resources to do the same.
Market structures impact not only how businesses compete but also how global trade operates. From monopolies that dominate industries to the diverse choices in monopolistic competition, these four structures lay a foundation for understanding economic trends like price fluctuations, trade policies, and even government regulations—though many more exist. Still, recognising them is an important first step to navigating the economy, reminding us that behind every carton of milk we buy, there's a much larger system at play.
Afrina Arfa is a Bachelor of Finance and Economics (Honours) alumna of Taylor's University. She spends her time indulging in economic news, hoping to inspire others to think beyond the constraints of society.
