Market Structure - Research Paper Example

any new firm can enter the market because of no restrictions such as high setup cost, legal barriers or any other. All the firms are earning normal profit as there is strong competition within the industry. Secondly, homogenous products are produced, i.e. all products are identical or standardized and are substitutes of each other, thus sharing the same price as well (“Dewett, 1983”). An imperfect competition is where there are not many producers in the market and there is less competition as buyers and sellers are not fully aware of the prices so different prices exist for same product in the market (“Dewett, 1983”).

There are three forms of an imperfect market: Monopolistic Competition: Under this structure, there are few sellers as comparedwith perfect competition and the products produced are differentiated due to branding, which gives the producer a way to have his own pricing policy and thus can earn more than normal profits (“Dewett, 1983”). Oligopoly: there are a few suppliers in the market in this structure, and every supplier has a substantial control over the prices, and output produced because few suppliers control the entire supply in the market.

There is strong rival consciousness because of the interdependence of suppliers. There is a possibility of product differentiation as well as substitute products, and the price-output policy of each supplier depends upon the degree of homogeneity or heterogeneity (“Dewett, 1983”). Monopoly: There is a single seller or producer who controls the entire market. As he controls the whole supply, he can fix the price and earn abnormal profits. There are high barriers to entry and exit from this industry, which prevents competitors from entering into it (“Dewett, 1983”).

It’s a one firm industry in which there is no need for differentiation because no substitutes are available. There is a single product completely under the control of a monopolist who is the price maker(“Dewett, 1983”). 2. Identify one real-life example of a market structure in your local city and relate your example to each of the characteristics of the market. There are different industries or markets operating in a city, with each of them following a different market structure according to the nature of the business there.

One such dominant industry is the women’s clothing, which is operating in the monopolistic competition market structure. It is a real-life example of this structure, and one can clearly categorize its features as those present in this market structure. There is a high number of sellers in the market with each producing a differentiated product and heavily advertising and promoting its brand name to create customer awareness. The aim of firms is to crate brand loyalty, which allows them to charge a higher price than their competitor, meaning that sellers have some control over price but not full control because of their interdependency.

In long-run, firm with effective advertising and innovation will only earn normal profits because of the competition as it will not be able to charge too high a price. However, in short run, some firms can earn abnormal profits with their non-price competition, quality, design or attractive advertising, just like in women’s clothing. The products are produced almost same style except some variation in the designs, quality and a strong brand name associated with it. There is