Differentiating Between Market Structures

1924 WordsDec 11, 20118 Pages
Differentiating Between Market Structures Alana Campbell, Dale Fortune, Katrina Beyah, Leonard Cooper University of Phoenix ECO/212 Principles of Economics Donnetta McAdoo December 5, 2011 Differentiating Between Market Structures To understand the economy of today one must understand the different market structures that make up the economy. There are four market structures that define the economic structure within the world’s economy; perfect competition, monopoly, monopolistic competition, and oligopoly. Team A will provide example of each market structure by completing a market structure table. The members of Team A will also compare and contrast the differences between public goods, private goods, common resources, and…show more content…
An oligopoly is a market situation in which control over the supply of a commodity is held by a small number of producers each of whom can influence prices and thus directly affect the position of competitors (Dictionary, 2011). An oligopoly operates similar to a monopoly because one company exerts control over highly large share of a market. The characteristics that allow economists to determine that Wal-Mart is an oligopoly are small number of rival firms, economies of scale, above-normal profit, and barriers to entry. A small number of rival firms refer to the few firms; such as K-Mart and Target that compete with Wal-Mart. For this reason, Wal-Mart has control over prices of the products while keeping track of the competition. An economy of scale has to do with a firm’s ability to negotiate lower costs because of the size of the company (Fowler, 2011). Wal-Mart’s large market share gives the company major bargaining power over its suppliers. The company will receive lower prices from manufacturers because of the large quantities that it purchases in relation to competition (Fowler, 2011). Above-normal profits give company’s power on cost as a result of less competition. Wal-Mart has the power to price its products at a price that will bring in the most profit. This also allows Wal-Mart to match the price of products of its competitors to encourage consumers to purchase products from the company. A barrier of entry is a natural element that exists in the
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