Company under Different Market Structures - Assignment Example

Company under Different Market Structures Introduction The term market structure is used to denote to the number of firms engaged in producing identical products. Different types of markets namely perfect competition, monopolistic competition; monopoly and oligopoly constitute the market structure (Central Washington University, 2003). Some other types of markets include duopoly and monopsony. General features of the market structures Perfect Competition A large number of small firms comprise the market for perfect competition. Each firm is small compared to the entire market. The comprising firms set the identical products. The customers as well as the firms are well informed about the prices. There are no barriers to entry for other firms to enter into the market. In the short run the firms can change only the variable factor namely labour. The other decisions are predetermined (Krčílková, n.d., p. 3). In the long run the firms have the potential to change their scale. In the short run when the existing price is less than the average cost curve it is better for the firm to close down. Monopoly In a situation of monopoly single firm exists in the market. The firm sells a unique product and there are no close substitutes. The firm has the power to set the price i.e. the firm is the price maker. Barriers to entry exist in the market of monopoly. There are many buyers and sellers in the monopolistically competitive market. The products of the market can be differentiated. Monopolistic competition Monopolistic competition along with oligopoly constitutes the structure of imperfect competition. Firms that are imperfectly competitive offer many products. The products are offered at administered prices. The price changes are costly and slower. The prime prediction of the theory of monopolistic competition is that firms will produce at the level where marginal cost equals marginal revenue in the short run. However in the long run, the firms will operate at zero profit levels and the demand curve will be tangential to the average total cost curve (Solow, 1999, p. 9). Oligopoly A form of market where the industry is dominated by small number of sellers is called oligopoly. Each oligopolist is aware of the market conditions as few sellers are present in the market. The decision of one firm can influence or are influenced by other firms. The responses of the participants of the market are taken into account in the strategic planning process by the oligopolists (Friedman, 1983, p. 6). Competition in oligopolistic market can give rise to different outcomes. An oligopoly can maximize its profits by producing at the level where marginal revenue equals marginal costs. In oligopolistic market firms may impose some restricted practices in trade in order to raise the prices. In this type of market, firms often collude to set the price at a level that will maximize the profit of the industry. Company or industry under different market structures The stock market can be regarded as the company the falls under the perfectly competitive market. In the stock market there are millions of buyers and sellers. The shares are identical which is in line with the feature of the perfect competitive market. The participants of the market enjoy the freedom of entry and exit from the market. There is easy entry into the stock market as well. Another feature of the perfect competitive market is that the participants are well informed. In stock market the participants enjoy all the available information with the help of internet. The farming as well as the fishing industry can be taken as some other examples. The cable TV industry in the country can be treated as the local industry and enjoys monopoly power. If the consumer wants to have a cable connection they have no other option but to ask the cable TV operators for connection. The industry is monopoly because there are no close substitutes for cable connection. There are barriers to entry into the monopoly market as the willing entrant will have to acquire licenses from the concerned authority. The cable providers can also charge the price according to their wish as they are only providers in the locality and have the potential to exploit the market conditions. A classic example of monopolistic competition is the market for hairdressing. Each hairdresser sells a product that is slightly different. They have different sets of skills and can also have markets in different localities. All these factors provide a differentiated product to the consumers. It satisfies the conditions of monopolistic market. The individual hairdressers face the downward sloping demand curve. A small rise in the cost of haircutting will shift some of the consumers but not all as some will be happy to pay a bit extra for the quality of service provided. The company that falls under oligopolistic competition in UAE is Gasco. The oil and gas industry has only few players as there are only few companies operating in this market. The decisions of the firms operating in this market are closely linked. If one firm decides to offer goods at lower prices the other operating firms will also take a strategy to reduce the price of their products as well. The operating firms can also involve themselves in collusion and enjoy the control of the existing market conditions. The players are all well informed about the conditions of the market and therefore satisfy the conditions of oligopolistic competition. Reference Krčílková, M. n.d. “Perfect competition II. Monopolistic competition”. [pdf]. Available at: http://pef.czu.cz/~krcilkova/lecture7.pdf. [Accessed: 27th September, 2012]. Central Washington University, 2003. “Market Structures: Monopoly”. [online]. Available at: https://www.google.co.in/url?sa=t&rct=j&q=&esrc=s&source=web&cd=11&ved=0CH0QFjAK&url=http%3A%2F%2Fwww.cwu.edu%2F~dhedrick%2FEcon%2520201%2FPowerpoints%2FEcon%2520201%2520Fall%25202003%2520Week%25208b%2520Monopoly.ppt&ei=lryLT4POKZDOrQeeucnNCw&usg=AFQjCNHuJgwfOTaEPt8MySTopwqniL9vkA. [Accessed: 27th September, 2012]. Machovec, F. 2003. “Perfect Competition and the transformation of economics”. [online]. Taylor and Francis e-library. USA. [Accessed: 27th September, 2012]. Solow, R. 1999. “Monopolistic Competition and Macroeconomic Theory”. [online]. Cambridge University Press. UK. [Accessed: 27th September, 2012]. Friedman, J. 1983. “Oligopoly Theory”. [online]. Library of Congress cataloging in publication data, USA. [Accessed: 27th September, 2012]. California State University, n.d. “The Firm and the Industry under Perfect Competition”. [pdf]. Available at: http://www.csun.edu/~lem50734/lecture_6.pdf. [Accessed: 30th October, 2012]. Read More