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Market Structures and Pricing Strategies - Essay Example

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This essay analyzes the four basic market structures - perfect competition, monopoly, oligopoly and monopolistic competition. The four structures analysed in the paper differ in terms of number of sellers and buyers, differentiation of products and barriers to entry…
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Market Structures and Pricing Strategies
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Market Structures and Pricing Strategies

Download file to see previous pages... The basic understanding underlining the case study is that the four basic structures are perfect competition, monopoly, monopolistic competition and oligopoly. Perfect Competition and Monopoly are the extreme forms and most of the markets in existence lie between the two extremes. It has been observed by economists that perfect competition and monopoly are theoretical. During 1930s Edward Chamberlin of Harvard University and Joan Robinson of Cambridge University tried to make the study of market structures more realistic. The structure they analyzed is called monopolistic competition. “The concept of perfect competition was first introduced by Adam Smith in his book "Wealth of Nations". Later on, it was improved by Edgeworth. However, it received its complete formation in Frank Kight's book "Risk, Uncertainty and Profit".” Perfect competition is the market structure where you have large number of buyers and sellers. The sellers sell identical products. An example of Perfect Competition is the market of bathing soaps. Key characteristics of Perfect Competition are
1. Knowledge is freely available
2. No barriers to entry
3. Firms produce identical products
4. No single firm can influence the price. The firm is the price taker and the price is determined by the industry demand and supply.
5. There are large number of firms in the market
6. The motive of the firms is profit maximisation
Monopolistic competition and Oligopoly lie between the two extreme market structures of Perfect Competition and Perfect Monopoly.





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Later on, it was improved by Edgeworth. However, it received its complete formation in Frank Kight's book "Risk, Uncertainty and Profit" (1921).” As stated on : http://economicsconcepts.com/perfect_competition.htm Perfect competition is the market structure where you have large number of buyers and sellers. The sellers sell identical products. An example of Perfect Competition is the market of bathing soaps. Features of Perfect Competition: Key characteristics of Perfect Competition are 1. Knowledge is freely available 2. No barriers to entry 3. Firms produce identical products 4. No single firm can influence the price. The firm is the price taker and the price is determined by the industry demand and supply. 5. There are large number of firms in the market 6. The motive of the firms is profit maximisation 2. Monopolistic Competition Monopolistic competition and Oligopoly lie between the two extreme market structures of Perfect Competition and Perfect Monopoly. What is Monopolistic Competition? In this market structure, there are many buyers and sellers, like in a perfect competition. However, the products are more differentiated. An example could be Restaurants, where every restaurant may specialize in a different cuisine. As Karen Collins puts it in the book Exploring Business, “Products can be differentiated in a number of ways, including quality, style, and convenience, location, and brand name.” Features of Monopolistic Competition: The Key features of Monopolistic Competition as mentioned in the book “Economics: Principles and Policy” by William j. Baumol and Alan S. Blinder are: 1 Large number of buyers and sellers 2 Freedom of entry and exit 3 Perfect Competition 4 Heterogeneous ...Download file to see next pagesRead More
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