- All Best Essays, Term Papers and Book Report

Market Structure

Essay by   •  June 9, 2012  •  Research Paper  •  1,479 Words (6 Pages)  •  1,939 Views

Essay Preview: Market Structure

Report this essay
Page 1 of 6

In the world of business, the dynamics of supply and demand can be understood by knowing the market structure in which a company finds itself. Who is your competition, what kind of strategy should be implemented to have profits, and even better, how to achieve maximize profits? Knowing the advantages and limitations of the characteristics that have an influence in the nature of competition and pricing is important to any type of business (Colander, 2008). The following will be a discussion on a stimulation provided by Principles of Microeconomics class and identifying the market structure of a selected organization.

In the stimulation provided by the University of Phoenix, East-West is a company that has four divisions performing in four different market structures, Perfect competition, monopoly, monopolistic competition, and oligopoly. In the first scenario, the Consumer goods division of East-West, was facing losses due to new competition, and was considering exiting the market. The Consumer goods division found itself in a perfect competition market structure (Differentiating between Market Structures- stimulation , 2010). In a perfect competition market, some advantages are few barriers for companies to enter the market, thus attracting many sellers; firms are aware of market conditions and prices because product or services are identical thereby giving them the know how to maximize profits; prices can be set at marginal cost (max profits=MR=MC) creating low prices for the consumers, and finally efficiency is key and a benefit in order to survive a perfect competition market (Differentiating between Market Structures- stimulation , 2010). Some disadvantages in a perfect competition are the inability to change or deviate from given the price set by market conditions to increase revenue, thus reducing the ability excrete influence or create leverage in the market (Differentiating between Market Structures- stimulation , 2010). In a perfect competition, consumer can simply turn to the competitor if prices are too high thus reducing market share and profits. In this scenario, the decision was to continue operations by maximize profits (P=MR=MC) at $55 price, which would recover costs or losses.

In the second scenario, East-West's Coal division is a monopoly in the region. Its goal was to maximize profits while alluring consumers from a recent company who had exited the market. In a monopoly, a single seller or company has access to the market. One of the reasons for this condition to exist is that there are many barriers for entry for competitors. The following are advantages for a monopoly; they are not price takers, in order words, monopolies can set or control prices because of the absence of competitors and/or the ability to control the products or services being sold and prices are set usually with the goal of maximizing profits (Differentiating between Market Structures- stimulation , 2010). A disadvantage is inefficiency, efficiency is imposed by the presence of competitors; monopolies have no competitors; that would be conducive to inefficiency. A monopoly can increase prices but not the quality of a product or service, consumers could dictate demand of the output by reducing it (Colander, 2008). In this situation, profits would be reduced because demand would lower because prices are intolerable for consumers (Colander, 2008). In the stimulation, the goal was to maximize profits, a decision to increase price at $7.85 per ton while reducing costs. So, price must surpass marginal revenue to maximize profit.

In the third scenario, East-West's Chemicals division was in a duopoly, which is a type of oligopoly market structure. A duopoly is when two firms have control over the market. Since there is only two firms, one would follow the price trends of the other to avoid price wars and stabilize the market, thus, pricing and output decisions are deliberate between the firms (Differentiating between Market Structures- stimulation , 2010). An advantage is that both firms increase their profits in the long run, if prices are stabilized at an arranged price between the two firms (Differentiating between Market Structures- stimulation , 2010). An disadvantage in this type of market structure would be a firms inability to predict the decisions of the another firm, finding themselves in a "prisoners dilemma" which could conduce to a price war, which in the long run would be a "lose-lose" condition for both firms (Differentiating between Market Structures- stimulation , 2010). In the stimulation, the goal was to stabilize prices between East-West's Chemicals division and Far and Wide, by setting prices at $3,300 this was obtained, as well as maximizing East-West Chemicals profits.

In the fourth scenario, East-West's Forest Product division is in a monopolistic competition market. In a monopolistic



Download as:   txt (9.2 Kb)   pdf (118.9 Kb)   docx (11.7 Kb)  
Continue for 5 more pages »
Only available on