Analysis of Market Structures and Pricing Strategies
Analysis of Market Structures and Pricing Strategies
The markets today are so complex and deal with so many variables it can be difficult to understand just exactly how they operate. In the following I will reveal the different kinds of market structures along with their different pricing strategies. Relating to these topics, I will focus on the importance of cost, competition and customer. 1. Analysis of different market Structures Different market structures are basically compared by the number of competing firms and the extent of entry barriers. a) A perfect competition structure has zero entry barriers with a lot of firms. This means it has a large number of competitors, with each firm has only a small amount of the market share. A perfect competition structure has no single firm that controls the market or its pricing. Another important aspect of a prefect competition structure is that each firm sells the same exact product(s). Keep in mind that there are no barriers for new firms to enter the market which means that a good number of new firms tend to come and go. (Adams and Brocks, 200). b) Monopolistic competition is very similar to a perfect competition in the sense that there are many small companies competing with zero entry barriers. The key component that distinguishes it from a perfect competition structure is that they produce different products, unlike perfect competition where the firms produce the same or very similar products. (Samuelson and Marks, 2010). c) Oligopoly structures have moderate to high entry barriers with a few number of firms. Here there are limited companies that control the market. This type of market structure has a competition which they must constantly be working on improvements to compete with rivalry companies. d) A monopoly has high entry barriers with only one firm. This single firm also doesn’t really have any competitors. In a monopoly, this
The markets today are so complex and deal with so many variables it can be difficult to understand just exactly how they operate. In the following I will reveal the different kinds of market structures along with their different pricing strategies. Relating to these topics, I will focus on the importance of cost, competition and customer. 1. Analysis of different market Structures Different market structures are basically compared by the number of competing firms and the extent of entry barriers. a) A perfect competition structure has zero entry barriers with a lot of firms. This means it has a large number of competitors, with each firm has only a small amount of the market share. A perfect competition structure has no single firm that controls the market or its pricing. Another important aspect of a prefect competition structure is that each firm sells the same exact product(s). Keep in mind that there are no barriers for new firms to enter the market which means that a good number of new firms tend to come and go. (Adams and Brocks, 200). b) Monopolistic competition is very similar to a perfect competition in the sense that there are many small companies competing with zero entry barriers. The key component that distinguishes it from a perfect competition structure is that they produce different products, unlike perfect competition where the firms produce the same or very similar products. (Samuelson and Marks, 2010). c) Oligopoly structures have moderate to high entry barriers with a few number of firms. Here there are limited companies that control the market. This type of market structure has a competition which they must constantly be working on improvements to compete with rivalry companies. d) A monopoly has high entry barriers with only one firm. This single firm also doesn’t really have any competitors. In a monopoly, this
References: Adams, W., Brocks, J., (2000) The Structure of American Industry. New York: Prentice Hall. Bulow, J., Geanakopolos, J., Kemplerer, P. (1985) “Mulutimarket Oligopoly: Strateegic Substitutes and Comlements,” Journal of Political Economy. Nelson, R., (2005). The Limits and Complexity of Organizations, New York: Russell Sage Foundation Press. Samuelson, W. Marks, S. (2010). Managerial Economics. United States of America: John Wiley & Sons Inc.