Characteristics of Different Markets A market is a place or process that brings buyers and sellers together to agree on a price that leads to an exchange of goods or services. There are different types of markets that are defined and categorised based on various factors, which develop market structure: “The interconnected characteristics of a market, such as the number and relative strength of buyers and sellers and degree of collusion among them, level and forms of competition, extent of product differentiation, and ease of entry into and exit from the market.” (Web Finance Inc. 2014) Most of the markets will have competition of a sort, higher or lower than other, but competition nonetheless. For instance, the most imperfectly competitive market is oligopolistic market where the market is dominated by a small number of large firms producing most of the output in the industry, whilst a very large number of small firms will be rather unimportant. The market is hard to enter. Whilst the perfect competition market is easy to enter because it consists of mostly small independent firms that sell the same goods/services with none of them large enough to dominate the market. On the other hand, monopoly will have no significant competition as it only exists in a market with one supplier. Because of this the market is considerably hard to enter. The type of the market affects the price setting in the industry. The perfect competition market heavily relies on the competition of price whilst in oligopoly market the price is not always the most important factor in order to stay competitive. Other factors like marketing mix (4 P’s) and the branding could potentially be more significant. Whilst monopoly market will not be influenced... ... middle of paper ... ...) Biz/ed 1996 – 2012, available from https://www.google.co.uk/search?q=diagram+of+perfectly+inelastic+supply&espv=210&es_sm=91&tbm=isch&imgil=5kwQZzlnCUzHAM%253A%253Bhttps%253A%252F%252Fencrypted-tbn0.gstatic.com%252Fimages%253Fq%253Dtbn%253AANd9GcSqe3sOFe-C9voI5OW7Uz6h3PBOhpZ2GiWZEiA4HzgXe6WzoJ_g%253B341%253B199%253BMFG6fGYhpV5IUM%253Bhttp%25253A%25252F%25252Fwww.bized.co.uk%25252Freference%25252Fdiagrams%25252FPerfectly-Inelastic-Supply-Curve&source=iu&usg=__lRBNYpSRTwQmjNyMpZGvPHeCtFs%3D&sa=X&ei=0qgXU7vMJ4L8ygPU24DYCw&ved=0CDQQ9QEwAQ&biw=940&bih=658#facrc=_&imgdii=_&imgrc=5kwQZzlnCUzHAM%253A%3BMFG6fGYhpV5IUM%3Bhttp%253A%252F%252Fwww.bized.co.uk%252Fsites%252Fbized%252Ffiles%252Fimages%252Fdiagrams%252Fsmall%252Fpes_0.gif%3Bhttp%253A%252F%252Fwww.bized.co.uk%252Freference%252Fdiagrams%252FPerfectly-Inelastic-Supply-Curve%3B341%3B199 (Accessed on 05/03/2014)
The oligopoly market is a few relatively large firms that have adequate to significant market power and that they recognize their interdependence. Each firm know that their choice of actions or changes in their outputs will have an effect on other firms and in response to the change, other firms will take actions accordingly to adjust therefore will affect its sales and revenue. (Thomas 428) To closely define, the oligopoly characteristics consist of (a) a few large dominant firms; (b) a product or services either standardized or differentiated; (c) firm’s decision on price and output affect the demand and marginal revenue of other firms in the market and vice versa; and (d) the entry barriers to become a dominant firm consist of substantial involvement of technology and economical terms. With these characteristics, there are usually as few as two and as many as ten firms that make up large market shares in any one particular industry.
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...
Due to the various options of distribution channels their prices vary. Consumers take that into consideration when purchasing their products.
Oligopolies do not compete on prices. Price wars tend to lead to lower profits, leaving a little change to market shares. However, Oligopolies firms tend to charge reasonably premium prices but they compete through advertising and other promotional means. Existing companies are safe from new companies entering the market because barriers to entry to the market are high. For example, if products are heavily promoted and producers have a number of existing successful brands, it will be very costly and difficult for new firms to establish their own new brand in an oligopoly market.
Topic A (oligopoly) - "The ' 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.
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.
There are four major market structures; perfect competition, monopolistic competition, oligopoly, and monopoly. Perfect competition is the market structure in which there are many sellers and buyers, firms produce a homogeneous product, and there is free entry into and exit out of the industry (Amacher & Pate, 2013). A perfect competition is characterized by the fact that homogeneous products are being created. With this being the case consumers have no tendency to buy one product over the other, because they are all the same. Perfect competitions are also set up so that there is companies are free to enter and leave a market as they choose. They are allowed to do with without any type of restriction, from either the government or the other companies. This structure is purely theoretical, and represents and extreme end of the market structure. The opposite end of the market structure from perfect competition is monopoly.
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.
As with all markets and their respective economies, having equilibrium is one of the key factors of a successful system. Although most markets do not reach equilibrium, they attempt at getting close. There are numerous methods devised to reach equilibrium, whether they involve human intervention directly or a cumulative decision by all factors involved. These factors may be a seller's willingness to lower overall revenue, or a buyer's willingness to withhold some demand for a certain product. Of course, the basics of supply and demand retrospectively control the equilibrium in the market.
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).
A monopoly is “a single firm in control of both industry output and price” (Review of Market Structure, n.d.). It has a high entry and exit barrier and a perceived heterogeneous product. The firm is the sole provider of the product, substitutes for the product are limited, and high barriers are used to dissuade competitors and leads to a single firm being able to ...
An oligopolistic market has a small number of sellers dominating market share and therefore barriers to entry are high. These sellers are highly competitive and do not act independently of each other. Access to information is limited so sellers can only speculate of their competitor’s actions. Sellers will take advantage of competitor’s price changes in order to increase market share.
A market economy may therefore also be known as a free market economy. It is a type of economic system in which the trading and exchange of goods, services and information takes place. The phrase is normally applied to countries or management regions that follow this approach. It functions primarily depending upon the forces of the market, namely demand and supply. Every commodity allocates and distributes based on the principle of “price”. Generally, price of a commodity shoots up when its demand exceeds supply and when the reverse occurs.
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.
Introduction In this essay I am going to analyse the workings and effectiveness of the price mechanism as a means of allocating and reallocating scarce resources. I am going to do this by comparing the free market economy with its alternatives and by looking at how government intervention allows the price mechanism to carry on working. I am also going to look at the role that we, as consumers, play in the workings of the price mechanism.