ECO/365 Principles of Microeconomics
August 30, 2012
Differentiating Between Market Structures
Retail sales are indicators of microeconomic conditions presented in a given area at a particular place in time. Since Sam Walton opened his first Wal-Mart store, Wal-Mart has been making ripples throughout the micro economies of America. Wal-Mart’s market structure is typical of most of our nation’s largest corporations in that they are an oligopoly (Brown, 2010). According to Colander (2010), “An oligopoly is a market structure in which there are only a few firms and these firms explicitly take other firms’ likely response into account when making decisions.” Furthermore, given that Oligopolistic firms are few, they are interdependent of each other and can either be collusive or noncollusive. It is this interdependence amongst the firms that distinguish them as an oligopoly vice a competitive monopoly. Target and Costco are considered to be Wal-Mart’s competition because they offer similar products and services to their customers. Through personal experience this writer and his family members typically compare the quality of the item, to the price we are willing to pay for that item, and we usually purchase that item from the firm that offers us the best quality for the price and shopping experience. A byproduct of this competition is a term called sticky prices. Sticky prices are the result of an informal collusion behavior and correlates to a kinked demand curve as one reason firms do not lower their prices to outsell their competition. Any increase or decrease in price will be met by their competition, causing the less elastic portion of the demand curve and its corresponding marginal revenue curve to cause a kink in the demand curve. This kink causes the marginal revenue curve to have a gap and is resultant from the theory of sticky prices (Colander, 2010). One competitive strategy that Wal-Mart can...