University of Phoenix
Determining Databases and Data Communications
A firm can fall under several market structures. The market structure of a firm also can change based on a number of items such as technology, mergers, product or service offering, etc. The simulation of East West brought to light the various market structures and the advantages and disadvantages of each.
East West’s Consumer good Division was a perfect competition market. It offered goods to consumers at market price. This can create challenges for the division. The main challenge is it may not drive the profit it needs to remain in business.
The next simulation illustrated is the monopoly market structure. East West’s Coal Division is able to establish its own price to earn the highest profits based on the demand by consumers. If the demand of coal were to decrease, the Coal Division would have to consider lowering its price, but would still remain profitable. Coal is a source of energy needed, there will always be a demand unless an alternative becomes available. This secures the Coal Division’s ability to set the price for optimal profits.
The third simulation highlights oligopoly market structures. East West’s Chemical Division has another competitor, but can set prices with the competitor to establish higher profit margins. If the competitor lowers or raises prices this could help or hurt the Chemical Division and vice versa. If the Chemical Division agrees to set a price with the competitor to earn maximum profits, consumers may be hurt by having to pay unnecessarily inflated prices. This form of oligopoly market is also known as duopoly.
East West’s Forest Products Division simulation illustrates a monopolistic completion. In this type of market there are several buyers and sellers, but the products offered are different...