Market Structure and the Role of Government
1. Explain the unique characteristics of the four primary market structures.
Before one can explain unique characteristics involving the four primary structures they must take into account as to what that actually means. In order to justify what they are one must first know the definition as to what a market structure is and how it effects the industry. Take for instance the definition of industry is when a firm basically makes products that are somewhat alike. So the structure of the market when it pertains to the industry deals with how many firms that are in competition for that particular industry.
The four primary structures are as follows perfect competition, monopoly, oligopoly and monopolistic competition. According to (Flynn, n.d.), each one has a uniqueness about them perfect competition occurs when small firms compete against each other. They are a competitive industry and produce at the lowest level of cost per unit. Monopoly has no competitors in the industry
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Non-rivalry consists of several individuals that can consume the same good without diminishing its value. The individual demand curves are summed vertically to get the aggregate demand curve for the public good (Hicks, 2012). Non-excludability is when and individual cannot be prevented from consuming the good. Which means that the private markets often underprovide non-excludable public goods because individuals have the incentive that everything should be given to them on a silver platter and they must have the right to a free ride. Which simple means that no one pays for the benefits they receive from consuming the public good which equals the marginal cost of providing the public good. Providing public financing seems like it may be the logical answer in this case where the pubic good is non-excludable and entry fees are not charged (Hicks,
Firms may be categorized in a variety of different market structures. Perfectly competitive, monopolistically competitive, oligopolistic,
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 refers to the amount of competition that exists in the market between producers. The degree of competition can be thought of as lying along a continuum with very competitive markets at the end and markets in which no competition exists at all at the other end.
There are several market structures known. They include monopoly, monopolistic competition and oligopoly market structures. Travelodge operates in a monopoly market structure. A monopoly market structure is one which, there is only one seller.it has the most significant market authority (Haines, 2009). A monopoly market structure is a good example of an imperfect market. Bearing in mind, it has the power to raise the price of its services and products. In relation to Travelodge, monopoly arises as a result of lowering the cost of its products and services. Having grown and fully established itself, lowering of its prices on services and goods would not affect its marginal profits as much. On the other hand, it will motivate other upcoming firms to make profits and hence withdraw from the market (Sexton, 2008).
Under monopoly one firm has no rivals (Rittenberg and Tregarthen, 2009). On the contrary, in perfect competition many small firms co-exist, none with the power to influence price (Sloman and Sutcliffe, 2001). Equally important, as a combination of monopoly and competition, monopolistic competition represents the market with freedom to enter and many firms competing. However, each firm produces a differentiated product and therefore has some control over its price. Finally, oligopoly exists when few large firms can erect barriers against entry and share a large proportion of the industry. Moreover, firms are aware of their rivals and concerned about their response to competitive challenges (Allen, 1988). Consequently, oligopolies operate under imperfect competition.
What is a perfectly competitive market? A perfectly competitive market is defined as something that occurs in an industry when that industry is made up of many small firms producing homogeneous products, when there are no impediment to the entry or exit of firms, and when full information is available (Baumol and Blinder, 200). In other words, when competition is at its greatest possible level, it describes a market structure in a perfect competition. A perfect competitive market consists of many buyers and sellers and therefore each buyer or seller is a price taker. All sellers tend to supply the same identical product. When four conditions are satisfied, a market is said to operate under perfect competition. We need to be able to define and explain the four conditions which are numerous small firms and customers, homogeneity of product, freedom of entry and exit, and perfect information.
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 market structure of an industry is the deciding force for how a business runs its operations. Strategies that would excel in a monopoly structure would surely fail in a perfect competition. Market structures vary from industry to industry and define what practices are acceptable. They determine the price of goods, availability of products, barriers to entry and number of firms in competition. To illustrate the effects of market structure on an industry, an analysis of The Ridge Tool Company and the tool manufacturing industry will be done.
Oligopoly is a market structure where there are a few firms producing all or most of the market supply of a particular good or service and whose decisions about the industry's output can affect competitors. Examples of oligopolistic structures are supermarket, banking industry and pharmaceutical industry.
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).
Market structure is when an industry has a number of firms making identical products. An industry’s market structure depends on the how many firms are in that in industry and how they will compete in the market. We can focus on those specific factors that will affect how it will change competition and also price. The types of market structure include oligopolies, monopolies, perfect competition and monopolistic competition.
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).
A Monopoly is a market structure characterised by one firm and many buyers, a lack of substitute products and barriers to entry (Pass et al. 2000). An oligopoly is a market structure characterised by few firms and many buyers, homogenous or differentiated products and also difficult market entry (Pass et al. 2000) an example of an oligopoly would be the fast food industry where there is a few firms such as McDonalds, Burger King and KFC that all compete for a greater market share.
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.