How Market Structures Influence Decision Making in My Workplace - Essay Example

Market Structures (Monopoly) and How it Influences Decision Making In My Work Place Market Structures (Monopoly) and How it Influences Decision Making In My Work Place The market and Market Structures Markets helps companies come up with a product, while customers decide what to buy. Our market structures are forces that aid in directing decision-making and mainly relay on the availability of the item, how much it costs, and also the incentives offered. Consequently, an organization’s level of success is dependent on its capability in acquiring or producing services or goods. Market structure in economics refers to the level of competition experienced by businesses in an industry.  Market structure is what determines the type of product sold the level of ease for new businesses to join that industry, and the quantity of information available concerning that industry (Stackelberg 10). Industrial Organization Theory In order to fully comprehend how market structures influence decision making in an organization, it will be important to mention the industrial organization theory. Industrial Organization Theory states that it is the market forces that should drive decision-making in an organization. These market forces include consumers, suppliers, competition, both current and potential, and also those creating the same goods. Industrial organization theory is based on the Firm theory. The Firm theory views the market as a driving decision-making tool within an organization, and relates this to its general association with the market. The amount of market information we can access, the expense of transactions, unsatisfactory competitive environment and government dealings are also taken into account in the Industrial Organizational Theory (Stackelberg 12). Monopoly When we as the supplier have complete power in the market pertaining to a specific commodity or service, this is regarded to as a monopoly structure, and thus we can control whatever pertains this good or service. There are two categories of monopoly natural monopoly, which is where because of its market dominance; the decision rests on high permanent costs, thus making entry hard for other firms. The other one is legal monopolies, where market supremacy rest on a legal embargo of other incoming firms. Even though both categories make decisions in the same manner, the basic economic logic in decision making used by the organization as a monopolist is basically similar to that used by the competitive firm. That is: Increase production if marginal profits are above marginal expenses. Decrease production if marginal profits are below marginal expenses. Stay at the current level of production if marginal profits are equal to marginal expenses. Our comprehension of the appliance of this logic needs careful attention to both the expenditure side and the profit side. For example, a competitive corn farmer will take the price of corn as given by the market, for instance, $10 a suck. Selling another suck of corn brings the farmer marginal revenue of another $10. The monopolist does not take the price of his product as given. We however know that in order to sell more, price reduction will have to be effected. For us as a monopolist, decision making can be slow, since we are guaranteed of our market share (Stackelberg 18). Public Monopoly The organization I work for operates under the following modes of monopoly in its operations: Under public monopoly, we have the exclusive right to conduct our business within our region. Prices are set by the relevant authorities within our operational area through markup rules, but the organization controls entry; it has the mandate to select the number of business units it operates and determining its location. As a private monopolist, the organization chooses a store configuration in order to maximize profits. In our model, prices are fixed. Our customers are widely distributed, and they benefit, in the form of lower effective prices in reference from proximity to outlets. We estimate the model of demand as a function of our charges, considering other factors such as distance covered by our customer in order to reach our premises and other demographic characteristics. In order to quantify the customer benefit from a wider proximity, we observe two key parameters that together allow this. These parameters are price elasticity and disutility from travel. To enable direct calculation of surplus in production, we observe the fixed retail pricing as well as the wholesale cost. The model allows us to calculate demand, consumer surplus and producer surplus in all of our outlets. Our model of demand will link purchase behavior to demographic characteristics, the configuration of our outlets and price. We analyze these relations as a step towards a more formal estimation. First, we examine the relations between prices and demand, through regressions of log quantities on measures of log prices and flexible time effects. The way we charge varies only across time and not place. This is because prices move endogenously with anticipated variations in demand. Output Decisions This model also influences us since we have our dominant, share of the market, which is dedicated to our specific brand name. The organizational level of production for our share of the market, which puts into consideration all the other things being equal, dominates in a monopolistic sense since we are already a monopoly. Our organization does not attempt to change its prices, as that will direct its management to go back over their preferences. For example, there are Coke loyal customers and Pepsi loyal customers. The pricing between these two cola giants is small, and each firm makes its products in order to cater for its share of this vast market. If a new firm ventures into this field, it will come up with its own set of loyal customers, which will force Coke and Pepsi to do extensive marketing and cut back on production in direct proportion to the new firms market share (Stackelberg 30). Price Decisions In monopolistic competition, part of this market model emphasizes that fees are not an issue. This model generally stipulates that organizations we will not have a precise price control, but it is the market that does have this control. Our prices are driven to become the same among aspiring competitors. For example, if these two giant cola firms, Pepsi and Coke, are faced by a new competitor in the market with a good financial capability and a strong new ad campaign, prices will rapidly go down nearer to marginal cost. This means that these previously dominant cola firms, Coke and Pepsi, will see their marginal costs go up, since their similar plants and equipment are making smaller number of units of their product. For that reason, prices are dictated by the market and our firm (Stackelberg 34). Profits In this model, it is stated that the short term period is when profits are made. Thus, we can say that the superiority of the level of commitment is directly proportional to its short-term profits. In the long-run, profits will in a little while be one and the same with marginal costs, and our market exit will be the end result (Stackelberg 40). Conclusion Since we operate as a monopolist and we have the market power, we have decreasing marginal revenue (while assuming that all the units in the market are sold for the very same price). Since our rival firms output has no significant effect on market price, each additional unit a rival firm makes, generates profit equal to the prevailing market price. When we as the monopoly produce an extra unit, we increase the market quantity while simultaneously decreasing the market price (remember—as a monopoly we have market power and our rival firms dont). As a monopolist, we gain the price of the additional units sold, but since there is a diminishing curve in regards to demand, all units’ prices in the market reduce. Works Cited Stackelberg, Heinrich. Market Structure and Equilibrium. London: Springer, 2010. Print. Read More