Market Structures

Topics: Perfect competition, Monopoly, Economics Pages: 7 (2458 words) Published: February 15, 2013
Introduction. Market structure is a classification system for the key traits of a market and a specific social organization that exists between buyers and sellers in a given market. In this essay, I will focus on the two market structures of monopoly and monopolistic competition. I will firstly define each term and then examine their characteristics through the headings of :Level and forms of competition, marginal cost and demand Curve, the extent of product differentiation and its uniqueness, and ease of entry into and exit from the market. In conclusion the advantages of the monopolistic structure and disadvantages of monopoly in regards to the consumer will be presented next. Monopolistic competition is a highly competitive market structure that contains a large number of independent firms selling and buying products. I have chosen the Italian restaurant industry in Galway to represent this market. It was first “identified in the 1930s by American economist Edward Chamberlin and English economist Joan Robinson” 2010). It involves product differentiation, where each restaurant has a unique selling point giving them more credence then competitors. Each restaurant is competing for the same customers. The main characteristics that reflect this market include:     Restaurants are producing similar products yet none are an identical substitute. Restaurants are the price takers, retaining some market power. Restaurants are entering the market due to perceived lucrative profits. Restaurants aim to maximise profits.

Monopoly in contrast identifies a market where an economic entity has absolute dominance over the production or supply of certain goods or provision of some specific service. I have selected the Irish Rail industry which has a dominant market share to represent this market structure. It is in direct contrast to perfect competition. There is no direct competition and Iarnrod Eireann establishes its own profit maximising price and output. The main characteristics Iarnrod Eireann exhibits include:    The state company is the single firm selling all output in the rail transport market. Iarnrod Eireann has a unique product that is unfeasible to duplicate, thus is a price maker. There are restrictions on entry and exit to the market structure.

Level and forms of competition There is an increasing array of Italian restaurants in Galway City. This ensures that no single firm can exert extreme market control over prices or quantity produced. Monopolistic competition is beneficial to capitalism, and ultimately to the consumer who is offered a more value orientated, quality product. The industry itself has a very high utility value. Customers who do not obtain good service or a reasonable price can frequent another establishment. The entrepreneur in this market structure has a more prominent role in regards to decisions based on price and output, its markets, products and costs of production. (Kirzner, 1978). Restaurants are profit maximizers, with firms deciding on what price to set their product at, without excessive regard to its rivals. Iarnrod Eireann has a monopoly on all rail systems , operating and owning the state infrastructure. The company itself is a subsidiary of state owned CIE thus receives directions and guidelines from the Department of Transport. This natural monopoly has the ability to determine the price of its output as there is no close competitors; hence it is a price maker rather than a price taker. If the Iarnrod Eireann forces up the price of its fares, customers have no alternative. This single market entity controls the supply and demand for the service. The company has a recognition of the acute relationship between supply and demand and their pricing structures. The lack of competition eliminates any degree of price pressure that would exist in the market. This allows the industry to charge a perceived higher price for an inferior service when compared to EU...
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