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Review on Market Structure

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Review on Market Structure essay
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The importance of knowledge market structure has always been a vital asset since the rise of globalization. In today’s world, the debate about branch which has its own market specificity – the production of different goods, a various industry of sellers, the size of enterprises, the features of innovation, the composition and specificity of consumers is becoming more and more popular.

In microeconomics, the most elementary market structures are generalized and the conduct of manufacturing firms is studied, leading to the receipt of the greatest benefits for them-the receipt of the maximum profit. All of these generalizations are considered to be a key development, specific recommendations are developed that have importantly applied importance in the choice of the firm’s behavior strategy in specific market features.

The object of the evaluation of competition is the branch. For instance, a group of competitors producing goods/services and directly competing with each other. The purpose of the analysis is to identify the “competitive advantages” of the firm and the choice of a competitive strategy.

There are four main market structures: Perfect CompetitionMonopolistic Competition, Oligopoly, and Monopoly.

Perfect competition

Perfect competition indicates a market structure, in which a plenty amount of small firms compete against each other. Moreover, firms do not have a significant impact on the power of the market. Consequently, the manufacturer generally produces the absolute level of production, which in turn lead to market has many buyers and producers trading homogenous products so that each buyer and seller is a price taker.

Perfect competition relies on the following elements:

•All small firms are focused to maximize profits.

•The goods which offered by the different sellers are largely typical.

•There are no specific preferences between different sellers. It does not matter for the customer from which firms buy the products.

•All firms have free access and exit to the market.

•There are perfect information and knowledge about homogenous products.

At present, according to Nelson statistics (2017), 3885567619 out of the global population7519028970 people use the internet. Approximately 3.9 billion internet users are both producers and consumers. The above-mentioned example demonstrates that the internet is a market, where a myriads number of consumers/producers operate without any influence on market power which in turn lead to equal opportunities in this market, exemplifying one of the features of perfect competition.

Example of perfect competition.

Internet-related industries. The internet has a strong influence on perfect competition market due to the fact that the internet has made the way of comparison and check prices easily, quickly and efficiently (perfect information). Consequently, selling any kinds of good on the internet through a service such as Alibaba, Aliexpress and E-bay are extremely similar to the perfect competition. For instance, it is becoming more and more popular to use the above-mentioned online-magazines to compare prices of any types of product and buy cheaper ones.

Like perfect-competition online magazines namely Alibaba, Aliexpress and E-bay rely on the following elements:

•There also a large number of sellers.

•Perfect information and knowledge. It is easy to compare the prices of goods.

•There are no significant barriers to entry and to exit to the market.

Monopolistic competition

Monopolistic competition is a type of market structure consisting of many small companies that produce differentiated products and free entry into the market and exit from the market. The products of these firms are close, however not completely interchangeable, it means that there is a difference in price, features,branding, and marketing.

By differentiating the product, the /monopolistic competitor reduces price elasticity. Raising the price, the monopolistic competitor is not lost of all consumers, as it happens in the conditions of perfect competition. The market is somewhat narrowed, however, there remain those who steadily prefer the products of only this manufacturer.

Monopolistic competition relies on the following elements:

•availability of many sellers and buyers (the market consists of a large number of independent firms and buyers);

•free access to and exit from the market (no barriers that keep new firms from entering the market leaving the market);

•Differentiated, varied products offered by competing firms. Moreover, products may differ from one another in one or a number of properties (for example, in chemical composition);

•perfect awareness of sellers and buyers about market conditions;

•influence on the price level, but in a rather narrow framework

Example of monopolistic competition:

One of the most convenient examples of the monopolistic competition is washing powder.

There are quite a few different companies in Poland such as Ariel, Tide, Ares, Perwoll, Lenor, Vizir, Perlux, Maxi that, FF, Persil, Look, Surf, BioPower, Origami and so forth. As a result, for the production of new varieties of detergent powders, it is not required to create a large enterprise. Therefore, if firms producing powders will receive large economic profits, this will lead to the inflow of new firms into the industry. New firms will offer consumers washing powder of new brands, sometimes not much different from those already produced a new package, another color or designed for washing different types of fabrics.

OLIGOPOLY

The market of oligopoly is characterized by the presence on the market of a minimal number of large sellers, whose goods can be either homogeneous or differentiated. The entrance to the oligopolistic market is extremely difficult, the entrance barriers are very high. Control of individual companies over prices is limited. Examples of oligopoly can serve the automotive market, cellular communication markets, household appliances, metals. The difference of the oligopoly is that the decisions of the companies about the prices for the goods and the volumes of its supply are interdependent. The situation on the market depends heavily on how companies react when the price of a product changes with one of the market participants. Two types of reaction are possible: the first is reaction, when other oligopolists agree with the new price and set prices for their goods at the same level (follow the initiator of the price change); the second ignoring reaction – other oligopolists ignore the price change by the initiating firm and maintain the previous level of prices for their products. Thus, for the oligopoly market, a broken demand curve is characteristic.

Features andconditions of oligopoly:

•the number ofsellers in the industry: small;

•size of firms:large;

•number ofcustomers: large;

•goods: homogeneousor differentiated;

•control over theprice: significant;

•access to marketinformation: difficult;

•barriers to entryinto the industry: high;

•methods of competition:non-price competition, very limited price.

Cellular services today are the most profitable and rapidly growing segment of the telecommunications market in Russia. A small number of sellers dominate the Russian cellular market, which is one of the most obvious examples for oligopoly. The leading players here are MTS, Megafon, Beeline, Tele2. A feature of the Russian cellular market is that it is characterized by a high-level of competition. MTS successfully relies on the price leadership strategy; Megaphone applies the strategy of minimum prices for services; Beeline relies on a pricing strategy based on individual costs; Tele2 provides the widest range of tariff plans at low prices.

Monopoly

A monopoly occurs when an enterprise produces products for which there is no substitute. The opposite of perfect competition is a pure monopoly – a market where the only one firm operates, which by virtue of this circumstance can influence the market equilibrium and market price.

Monopoly – a market structure that meets the following conditions:

•The release of goods throughout the industry is controlled by one seller of this product, which means that the monopolist is the only producer of this good and personifies the entire industry.

•The good produced by the monopolist is special in its own way and has no close substitutes.

•Monopoly is completely closed to enter the industry of new firms, therefore in the conditions of monopoly, there is no any competitive struggle.

Example of monopoly:

The most prominent example of a pure monopoly in the United States is the United StatesPostal Service (USPS). People have all heard that the Postal Service lost a lot of money. According to a report released in 2014, the United States PostalService lost a staggering $2 billion dollars in just 3 months, despite cutbacks in service. With such a glaring need for developed operations, you might wonder why other businesses haven’t entered the market to compete with the Post Office for first-class and standard mail delivery. Moreover, it should be noticed that the Post Office is a government-protected monopoly. The Private ExpressStatutes established in 1792 gives the USPS exclusive rights to deliver letters for a fee, with very few exceptions. Letters that are designated to be ‘extremely urgent’may be delivered by other providers but even then, the Post Office is allowed to set the minimum price that the private competition must charge. This is an example of a legal barrier to entering the market.

In conclusion, there are four main types of market structure: perfect competition, monopolistic competition, oligopoly, and monopoly, which are different from each other by their goods/services, using specific tactics of behavior and marketing methods to maximize the profit in the market sphere. Therefore, The perfect competition illustrates a market structure, where myriads of small firms contend with each other, while monopolistic competition also has a lot of small firms, which compete with each other with the help of varied products. Besides, Oligopoly demonstrates a marker structure with a small number of firms. Monopoly is the opposite of perfect competition, where only one firm controls all market.

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Review on market structure. (2018, May 23). GradesFixer. Retrieved October 20, 2021, from https://gradesfixer.com/free-essay-examples/review-on-market-structure/
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