Economic Market Structures

Topics: Economics, Monopoly, Competition Pages: 3 (950 words) Published: November 1, 2010
Industries are classified into four different market structures. They are perfect competition, monopolistic competition, oligopoly and monopoly. Each of these has different characteristics regarding the number of firms involved to the type of product they make. Different methods and restrictions are used to maximize profits in all markets of the economy. Brand management and advertising are two tools that firms used to differentiate their products. The main objective of brand management is to help sustain product differentiation over an extended period (Hubbard & O’Brien, 2010 p. 415). Firms use advertising to make a product more inelastic with a main goal of increasing sales at any price, and having the ability to increase prices without affecting sales (Hubbard & O’Brien, 2010, p. 415). To remain competitive, firms must rely on costly tools such as brand management and advertising which can lead to increased costs for consumers. Advertising is an extra expense for firms that can often lead to a greater yearly profit. Firms advertise through print, television ads, and in a multitude of ways on the Internet. As a firm has to spend more money to sell a good, the firm must in turn, raise the price for that good. In this respect, advertising can have a very negative effect on consumers because it can drive up the prices of goods. Advertising can also be beneficial to consumers in that it can lead to a more informed purchasing decision by the consumer. Advertising can have a positive and negative effect on firms and consumers. A Monopoly firm can charge prices higher than the marginal cost. These firms differentiate their products to appeal to the consuming public. They try to obtain and keep that customer through product differentiation. Many consumers will pay a higher price for a product that is best related to their wants and tastes. A government patent gives that firm an exclusive right to a new product for 20 years from the date of invention....
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