The markets in which the firms operate can be classified according to nature of transaction, time, volume, status, regulation, area and structure. According to structure markets are classified as perfectly competitive market, monopolistic competitive market, monopoly, duopoly and oligopoly. The price determination is different in different market structures. It also differs in the long run and in the short run.
Economic theory suggests that there lies a continuum of market structure that comprises of perfect competition at one end and monopoly at the other. Between these two extremes lie monopolistic competition, oligopoly and duopoly. There are large number of buyers and sellers in a perfectly competitive market. The firms have to determine the quantity to be produced because price is fixed at the market rates. In the short run the firm in a perfectly competitive market can earn profit or loss.
In a monopoly, there is a single seller whose product has non close substitutes. There is no free entry in its case. In monopolistic competition firms deal in differentiated products and take independent decisions. They may earn supernormal profits or normal profits or incur losses as well.
Duopoly is a situation where in homogeneous or differentiated products are sold by only two firms. Each firm has to see how its actions are likely to affect its rivals and how they are likely to react.
Oligopoly is a situation where there are small number of large sellers. The element of interdependence exists in this market. To avoid price wars, the oligopoly firms may decide to collude. For sustainable competitive advantage, various strategic alternatives may be used. Several pricing strategies are used by the firms. These include price lining strategy, limit pricing strategy, stay-out pricing strategy, psychological pricing, skimming and penetration pricing strategies.