Market Structures And Pricing Strategies

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Market Structures and Pricing Strategies There are different types of market structures all over the world since business is not done the same way everywhere. Even within the USA different companies use different pricing strategies based on the market structures. As a business and as a consumer it is vital to identify and understand these different types of market structures and their pricing strategies. The ideal type of market is the one where price and demand are not affected by anything, in other words it is always consistent. Of course the reality is that markets are affected by different factors, which can hike up the price for an item or lower it, hence increase demand or decrease it. There are 4 different types of market structures…show more content…
Due to the fact that all products are priced at market value, the consumer is more willing to purchase the item knowing that no one will offer a better price. In a perfect competition market the goal of the company is to maximize profits by ensuring production cost does not exceed revenues (calculating how much they can produce without losing money due to cost of production; MR=MC) and that consumer demands are met. Perfect competition markets are ideal because they tend to balance themselves out even though they have no barriers of entry (Hillman, 2014). Even if a company has a short run profit loss due to a period of high entry to market, at a certain point the revenues will equal market prices. Some companies will see it as a loss and will exit the market; hence allowing the prices to go back up and profits to be regained. The exiting of the market stops when every one of the firms remaining breaking even. If the businesses within the market are enjoying short-term profits this will increase entry to market; hence will decrease output from each company and decrease profits. This activity will end when the price of products equals total average cost and the economic profits are zero. The perfect competition’s long-term outcomes are two: allocative and productive efficiency (Hillman, 2014). Allocative efficiency is when a company’s output equals consumer demand, which eliminates the possibility of “deadweight”
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