Assignment: Maximizing Profits in Market Structures 1 What are the characteristics of each market structure? A competitive market is many sellers that sell similar products with very little control over the market selling price. An example of competitive market structure is a gasoline station. There can be many gasoline stations in a certain mile radius, the more gasoline stations there are in a small area the higher the competitive the market. Monopolies: Monopolies are a group of business people who act as one. Considerable power is in the company’s ability to set and influence prices.
The power is determined by the demand curve cladding the company and with almost no competition. Monopolies have no public ownership. When the competition is low and a company is dominating the demand curve it creates a monopoly because competition is low competition is never nonexistent, there are no other companies who can produce the same or substitute product. Microsoft would be a monopoly because there are very few competitors. Microsoft is supervised by contracts and patents that create strong barriers for its potential competitors.
Oligopolies: Oligopoly is group of sellers, who work together and have some control over the prices of a commodity in which there are few independent providers. Assignment: Maximizing Profits in Market Structures 2 Negotiations are managed via contracts. Oligopoly is a market that controls a commodity and is dominated by a small number of firms that act on one behalf. How is price determined in each market structure in terms of maximizing profits? Competitive Market In the competitive market no business has more market power than another.
The environmental conditions measure and determine the market structure. No specific company has more power than the next. In a competitive market structure substitutes are common so competition can be easily adhered. Gasoline stations can be common in an area of town; the consumer will have many choices. The consumer will choose a gas station for their own personal reasons, maybe because the prices are lower, closer to their home or place of work or because they think higher prices means better quality.
Monopolies are companies with exclusive certification, franchises, patient and/or trademarks and can dominate certain market structures. Because monopolies dominate certain market structures prices can be extremely high as output is lean, thus creating a much greater and unobstructed profit or revenue. Oligopoly Assignment: Maximizing Profits in Market Structure 3 Oligopolies are firms do not have exclusive certification, franchises, patient and trademarks and patents. Failure and dissolution is greatly possible if the completion is not greatly monitored and appropriate action is not taken.
Businesses that operate as oligopolies must be careful of its competition as not to price themselves in dissolution or failure, the competition must be scrutinized closely and prices comparatively administered to maintain and maximize its profits. How is output determined in each market structure in terms of maximizing profits? Competitive Competitive markets decision to produce more of a product and what price to charge largely depends on how competitive the market is. A gasoline station has little or no choice on what price to charge.
If the station is situated in a busy location where business is lucrative there is no reason to lower its prices, however, if the gasoline station is situated in a less traveled area and business is slower and less profitable the gasoline station will lower its prices to stay in the competition. Monopolies Monopolies in their efforts to keep profits high and output limited, take no consideration of the customer. Occasionally the government will attempt to contain monopolies by enforcing price controls or taking over an established ownership. Assignment: Maximizing Profits in Market Structure 4
Oligopolies The demand curves of oligopolies are steeper downward than other competitors because calculations must be made for the total market demand. The steeper the demand curves the better the discretion in pricing. Some businesses, during the day to day running of business, may choose to have a nonchalant or unconcerned approach to its competitors, ignoring the competitors’ market-related decisions can have detrimental consequences in securing the businesses’ place in the market structure is disadvantages, depleting instead of maximizing its profit and revenue.
Managers must be diligently aware of their company’s competition at all-times to maximize profitability possibilities. “Managers, of oligopolistic competitive firms may engage in open price (or design-, service-, promotion-) warfare or other predatory or even criminal behavior to the end of eliminating competitors so that monopoly (or more-limited oligopoly) position can be achieved (Chapter D4, Oligopolistic Competition). What are the barriers to entry, if any? Competitive Competition market is the heart of the capitalist economy.
Various levels of competition set the market structure. Monopoly and Oligopoly are the elements of a competitive market. Assignment: Maximizing Profit in Market Structure 5 Monopoly Monopolies have effective barriers to entry because they have certifications, franchises; patents and trademarks that make it difficult for competitors to enter a certain market. Exiting and dissolution are always achievable. Sellers are few and are familiar with the identities of each other. Every decision made must take into account the possible reactions of its few competitors.
Monopolies essential goal is to prevent competition by creating barriers that makes it virtually impossible for competitors to enter its market. Oligopoly Oligopolies do not have as many barriers as monopolies because its competitors. Competitors can be “Free riders” and bask in a firms already established abilities. Exiting this market is easily achievable by failure and dissolution or by combining with or disposing of the assets of its competitor. Competition is supervised closely and managers must be prepared to react consequently. What role does each market structure play in the conomy? Competitive: Assignment: Maximizing Profits in Market Structure 6 Competitive markets are based on the consumer’s choices to purchase products he or she wants based on his or her own personal criteria. Some examples of criteria consumers use are price and quality. Businesses offer a variety of products and services for purchase, the consumer makes the choice to purchase product encouraging and determining the manufacturing and price of future product. Competition is established on free-market economy in which many businesses off products and services consumers can choose from.
Monopoly: Monopolies play an essential role in the economy by monopolizing a particular market and making it virtually impossible for competition. Monopolies are usually one company that dominates a particular market structures while keeping competition minimal. Monopolies can hold a patient that gives them concentrated and unshared rights to a certain product or service. Monopolies take no consideration of its consumer and the government has had to step in to regulate exuberate prices, and sometimes to take over an existing business on behalf of the consumer.
Because monopolies can dominate certain market structures, “The Federal Trade Commission Act of 1914 prohibits unfair methods, acts, and practices of competition in interstate commerce. It also created the Federal Trade Commission, a bipartisan commission of five presidential appointees, confirmed Assignment: Maximizing in Market Structure 7 by the Senate, to police violations of the act. ” (Garman E. T. (1997). Consumer Economics Issues in America, 5th ed. Houston, TX: DAME Publications). Oligopoly
Oligopoly can be difficult to describe because there are no two situations alike. The circumstances and potential competitor reaction make each oligopolistic business different and unique. With monopoly there are single business model to draw conclusions from and with oligopoly there are many models so narrowing down specifics in an oligopoly can be difficult. Citations and References Garman E. T (1997). Consumer Economics Issues in America, 5th ed. Houston, TX: DAME Publications Chapter D4, Oligopolistic Competition