Essay Sample on Market Structures: Perfect Competition & Beyond

Introduction

Market structures are organizational and other market characteristics that are influenced by environmental factors to influence the outcome of a firm. Different market structures can classify an economy, and can well describe the nature of competition within a market. Four distinct market structures may either exist in reality or theoretically. Regardless of their existences, these constructs are critical for an organization's decision making. The market structures include; a perfect competition, Monopoly, A monopolistic competition, and Oligopoly.

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For a Perfect competition, great numbers of inferior organizations are perceived as being at a rival with homogenous services and products. The perfect competition form of market structure comprises companies with similar products for sellers, free trade that includes entry and exit, and multiple independent traders. Here, no single organization can control market price as they are considered powerless to characterize any part of the market. All companies in this category have lesser or no contributions to market share, and the entry and pricing can be perceived as being either above or below the average revenue (McKellar, Naimer, Landrum, Gibson, Chandra & Chernew 2014). Cases with elevated pricing are associated with increased market supply, whereas those with low normal pricing and entry are linked to decreased market supply and increases in market price. Demand and supply affect market price and quantity, and it is difficult to find such a competition theoretically. Electricity and utilities fall under perfect competition.

A monopoly, on the other hand, is that market structure with a single organization controlling the entire market. Buyers usually have no choices for their offers, and they may consider reducing their products to increase their rates and earn more. A monopoly consists of a seller of a unique brand with barriers to market entry arising from reputation, licenses, assets, or pioneering brands (Park, Cachon, Lai & Seshadri 2015). The demand curve for the monopoly market is downward sloping, and it considers assumptions such as profit maximization, free setting of prices, and the setting of a dominant organization (Farnham, 2014). The results are not desirable as they may comprise of lower outputs and higher prices compared to the competing firms. The government and other agencies control most of these markets. The Department of Motor Vehicles falls under a monopoly.

For a monopolistic competition, various organizations rival with different products. It consists of a pool of competing organizations with differentiated products that let them have an advantage to the market share (Bertoletti & Etro 2016). The competition of products is perceived in the order of quality, price, then marketing. Every firm is assumed to maximize its profits and have its clients preferred a product over the competitors'. There is a highly elastic demand curve for this market structure even though there are different sellers' products being competed for (Farnham, 2014). The athletic shoe firm, restaurants, and the ice cream business fall under monopolistic competition.

Finally, oligopoly is a market structure that comprises many firms competing against each other. The numbers characterize a limited competition within the market. Even with competition, the firms can collaborate to have greater efforts in raising their offers and receive better income compared to their actions. The numbers of firms may include large and small sellers, where the larger ones dominate over the smaller ones (Geras'kin & Chkhartishvili 2017). As soon as an action is made from the dominant firm, others follow suit since the organizations can be described as price makers. Various barriers to market dynamics such as entry and exit and different output are evident in an oligopoly market. The demand curve is such that some organizations within the competitive market would believe in the matching of price cuts and deviation from price fluctuations (Farnham, 2014). The Watch market and aircraft industry fall under the oligopoly structure.

Conclusion

The different market structures comprising the perfect competition, monopoly, monopolistic competition, and oligopoly lets entrepreneurs perceive the market outcomes differently. Furthermore, an understanding can be made regarding the factors that affect their position within a market. These structures may also be important in creating a winning business strategy that is important in creating a high market advantage over competitors.

References

Bertoletti, P., and Etro, F., 2016. Monopolistic competition when income matters. The Economic Journal, 127(603), pp.1217-1243.

Farnham, P. G., (2014). Economics for managers. Pearson.

Geras'kin, M.I., and Chkhartishvili, A.G., 2017. Structural modeling of oligopoly market under the nonlinear functions of demand and agents' costs. Automation and Remote Control, 78(2), pp.332-348.

McKellar, M.R., Naimer, S., Landrum, M.B., Gibson, T.B., Chandra, A., and Chernew, M., 2014. Insurer market structure and variation in commercial health care spending. Health services research, 49(3), pp.878-892.

Park, S.J., Cachon, G.P., Lai, G., and Seshadri, S., 2015. Supply chain design and carbon penalty: monopoly vs. monopolistic competition. Production and Operations Management, 24(9), pp.1494-1508.