FEBRUARY 19, 2010
During this previous week, our learning team began discussing the topic of
market structures. According to our readings, there are four different types of market
structures such as pure competition, a pure monopoly, a monopolistic competition, and
an oligopoly. Each one of these market structures are diverse in definition,
characteristics, and in application, which will be further explained later in detail. We had
learned that each one of these four market structures can be applied to businesses,
organizations, and many other companies and can also have an impact on their pricing
strategies, organizational goals, creating non-price barriers to entry, increase product
variety, strategies on price reductions. These concepts explained how the
businesses, organizations, and companies of today manage to stay in business and to stay
in compete with their major competitors.
As it was mentioned, determining pricing strategies is a valuable process that businesses benefit from. In an oligopoly, a business using a high-price strategy would be more effective if the competitor’s pricing was also a high-price strategy. The same concept applies to companies with a low-pricing strategy. Oligopolies acting independently may mutually end up with competitively low-price strategies (McConnell, Brue, & Flynn, 2009). Organizations in a monopolistic competition can set prices and output levels to maximize the company’s profit, without as many rivals as an oligopoly market structure. In an oligopoly, an organization uses pricing models such as the kinked-demand curve, collusive pricing, and price leadership. In a monopolistic market, a company uses price, product, and advertising to reach organizational goals of maximizing profit (McConnell, Brue, & Flynn, 2009). In addition, the demand curve of an organization is an important factor in determining the price strategy that would provide the business with the most competitiveness.
These same market structures also play a major role when associating with ways to determine non-price barriers to entry. But before explaining those non-price barriers, we feel that it is imperative to, if not by now, to have a better understanding of the four
market structures previously mentioned: pure competition, monopolistic competition,
oligopoly and pure a monopoly. Defining the market structure is accessible to see which
market barriers to entry can apply to each structure. Moreover, understanding the
different market structures also allow one to apply visually real world businesses to the
number of firms, type of product, control over price, condition of entry and non-price
competition. In a pure competition, this is made up of a large number of firms that
produce a standardized product and is very easy to enter. In a monopolistic competition
market structure, this includes a large number of firms that produce differentiated
products and is easy to enter. In an Oligopoly, this consists of a very small amount of
firms that produce a standardized or differentiated product that can be difficult to enter.
And finally in a pure monopoly market structure, this includes only one firm
that produces a unique product or service and is completely blocked from entering
A non-price barrier to entry is classified as a factor that firms implement that
prohibits new firms from entering an industry (McConnell, Brue, & Flynn, 2009).
Depending on barrier strengths, they may permit for either an oligopoly or pure
monopoly market. These two market structures are distinguished as markets
that are impossible or difficult to enter. Barriers to entry are typically the reasoning why.
Barrier to entries do not affect pure competition and monopolistic competition market
structures as significant because of the ease of...