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Summarise the market structures
Summarise the market structures
Summarise the market structures
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The 4 market structures in relation to the benefits and costs to the consumer and producer
A market structure are the characteristics of a market that significantly affect the behavior and interaction of buyers and sellers (Cabiya-an, 2014). This essay will describe the 4 market structures; perfect competition, monopolistic competition, oligopoly and monopoly. I will compare and contrast the market structures in relation to benefits and costs to the consumer and producer.
According to Sloman (2013), perfect competition is the most extreme market structure. The conditions include there being many firms, freedom of entry into the industry and the firm producing homogeneous products; each frim selling identical products e.g. milk (Griffiths,
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This shifts the supply curve to the right, lowering price. The firms making losses leave the market, which shifts the curve to the left and raises price. Allowing the rest of the firms to earn normal profits, as shown in Figure 1&2.
The second market structure is a monopolistic competition. The conditions of this market are similar as for perfect competition except the product is not homogenous it is differentiated; thus having control over its price. (Nellis and Parker, 1997). There are many firms and freedom of entry into the industry, firms are price makers and are faced with a downward sloping demand curve as well as profit maximizers. Examples include; restaurant businesses, hotels and pubs, specialist retailing (builders) and consumer services (Sloman, 2013).
In the short-run profit maximization would lead to supernormal profits. In the long-run with there being freedom to enter the market a leftward shift of the demand curve (AR) and marginal revenue (MR) curve. This is where the demand curve is tangential to the LRAC curve as seen in figure
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With there being several firms for 3 of the markets, the consumer benefits as they can find the cheapest producer, resulting in the producer being at a disadvantage as they could loose business. In a perfect competition market, the firm is unable to choose the price whereas in an oligopoly the price is chosen by the firm this is beneficial for the producer as it increases their profit margins. However, this is harmful for consumers as they will have to pay the higher prices.
Perfect and monopolistic competition markets both share elasticity of demand in the long run. In both markets the consumer is aware of the price, if the price was to increase the demand for the product would decrease resulting in suppliers being unable to make a profit in the long run. Lastly, both markets are composed of firms seeking to maximise their profits. Profit maximization occurs when a firm produces goods to a high level so that the marginal cost of the production equates its marginal
Consumers would lose-out from increased competition in the short-run, however in the long-run consumers would ultimately benefit from increased competition. High levels of competition prevent businesses from abusing their market power, such as setting prices above or below what a perfectly competitive market would dictate to be at equilibrium and also encourages businesses to be innovative instead of becoming complacent, relying on consumer’s lack of choices.
First, a perfectly competitive market provides low prices for consumer of the market. This exists as a pro for the consumers buying the product. In the example, it remains a pro for people purchasing the corn cheaply in Tap. When low prices exist in the market however, the burden is placed on the producers. This happens because the producers identify as price takers, and the price stays low due to competition. Low prices result in lower profits. On the island of Tap for example, low prices in a competitive market hurt the producers of corn. Meaning, farmers prefer the monopoly version of the market. The monopoly form results in farmers getting paid above the perfectly competitive market price. On the contrast, in a monopoly form prices remain higher for the consumers. The final pro of the monopoly form exists as the uniform packaging and quality. Since only one firm produces the specific product, they use the same quality and packaging throughout the process. This also be views as a con for the perfectly competitive side. This side uses many different forms of packaging and quality due to the various amounts of producing firms. Overall, many different pros and cons result when implementing various kinds of market
This organization belongs to the oligopoly market structure. The oligopoly market structure involves a few sellers of a standardized or differentiated product, a homogenous oligopoly or a differentiated oligopoly (McConnell, 2004, p. 467). In an oligopolistic market each firm is affected by the decisions of the other firms in the industry in determining their price and output (McConnell, 2005, P.413). Another factor of an oligopolistic market is the conditions of entry. In an oligopoly, there are significant barriers to entry into the market. These barriers exist because in these industries, three or four firms may have sufficient sales to achieve economies of scale, making the smaller firms would not be able to survive against the larger companies that control the industry (McConnell, 2005, p.
Market structure is classified according to the degree of competition firms encounter in their industry (Baker College, 2016). There are four main market structures: pure competition, monopolistic competition, oligopoly and a pure monopoly. Pure competition is where fir...
The Postal Service Monopoly In the United States economy most markets can be classified into four different markets structures. But, each and every market in the United States is completely unique from the others. Generally the best type of market structure for the general public is per- fect competition because it creates the lowest possible price for the public.
An oligopoly is defined as "a market structure in which only a few sellers offer similar or identical products" (Gans, King and Mankiw 1999, pp.-334). Since there are only a few sellers, the actions of any one firm in an oligopolistic market can have a large impact on the profits of all the other firms. Due to this, all the firms in an oligopolistic market are interdependent on one another. This relationship between the few sellers is what differentiates oligopolies from perfect competition and monopolies. Although firms in oligopolies have competitors, they do not face so much competition that they are price takers (as in perfect competition). Hence, they retain substantial control over the price they charge for their goods (characteristic of monopolies).
Firms may be categorized in a variety of different market structures. Perfectly competitive, monopolistically competitive, oligopolistic,
There are many industries. Economist group them into four market models: 1) pure competition which involves a very large number of firms producing a standardized producer. New firms may enter very easily. 2) Pure monopoly is a market structure in which one firm is the sole seller a product or service like a local electric company. Entry of additional firms is blocked so that one firm is the industry. 3)Monopolistic competition is characterized by a relatively large number of sellers producing differentiated product. 4)Oligopoly involves only a few sellers; this “fewness” means that each firm is affected by the decisions of rival and must take these decisions into account in determining its own price and output. Pure competition assumes that firms and resources are mobile among different kinds of industries.
Markets are different, without these different markets there would not be any structure. Being able to understand different markets and its language, like demand, supply, average variable cost and marginal costs we can better prepare for economic and financial future. The market structure and the interaction that occurs can be defined by the number of businesses, and barriers new firms have when entering a particular market. Perfect competition, monopoly, monopolistic and oligopoly are four forms of market structures recognized by economists.
cannot sustain this level of abnormal profits in the long run due to competitive pressures since other firms are free to enter and exit the industry and often firms enter and " eat into" the abnormal profit of. the monopolistic producers, as shown in the graphs below. In an oligopoly, firms are interdependent, e.g. as shown in the graph. below, if firm X decides to lower its price from B to D, sales should increase from A to C but since firms are interdependent, other firms would retaliate and lower their prices, too. So for firm X sales would increase only by AE, not AC.
A perfectly competitive market is based on a model of perfect competition. For a market to fall under this model it must have a number of firms, homogeneous products, and easy exit and entry levels into the market (McTaggart, 1992).
In conclusion, market structure is important because it leads to strategic decision making. Having a working knowledge of market structure impacts decision making because organizations will learn the characteristics of their competition and how the market will response to changes. This report discussed the four different types of market structures: monopoly, oligopoly, monopolistic competition, and pure competition. It went into detail about what each market structure was and gave every day examples of them. Additionally, it will outlined the type of market structure AutoEdge fits into, how that market structure impacts the level of competition, elasticity of demand, price, and position in the industry.
Can you imagine the world with a limited amount of choices when it comes to purchasing different products and services? How do perfect competition and monopolistic competition differ and affect our buying power? As stated by Investopedia (2016), “Perfect competition is the opposite of a monopoly, in which only a single firm supplies a particular good or service, and that firm can charge whatever price it wants because consumers have no alternatives and it is difficult for would-be competitors to enter the marketplace (para 1)”. Perfect Competition Perfect competition, also known as, pure competition is defined as the situation prevailing in a market where buyers and sellers are so numerous and well informed that all elements of monopoly are absent. In a perfect competition, the market price of a commodity is beyond the control of individual buyers and sellers within the market.
At prices higher than the equilibrium price the quantity supplied will be greater than the quantity demanded and the excess supply would oblige sellers to lower their prices in order to dispose of their output. For example, if price is 40p supply would exceed demand by 110. This situation, illustrated in Figure 11.2, where supply exceeds demand and there is downward pressure on price is sometimes described as a buyers’ market.
To begin with, the extent to which the monopolist can grab consumer surplus, which is "the extra satisfaction or utility gained by consumers from paying an actual price for a good that is lower than that they would have been prepared to pay"(Davies, Lowes and Pass, 2000), is referred to as the degree of price discrimination and there exists three degrees of price discrimination: first degree, second degree and third degree price discrimination. "First-degree price discrimination occurs when the sell...