Differentiating Between Market Structures
ECO/365
April 13, 2015
Benjamin Zuckerman
Differentiating Between Market Structures
Coca-Cola Company is one of the world’s leading soft drinks manufacturers. Since its creation, the company has been growing constantly. Today Coca-Cola manufactures more than 500 brands of products sold in more than 200 countries all over the world. Coca-Cola’s main competitor is Pepsi. Therefore, the two companies make up a duopoly where only two companies dominate the market. Both companies sell soft drinks. They also sell homogeneous products so that they can be able to control the price in the market. Coca-Cola Company depends upon the demand curve to adjust the price of its products. Specifically, the
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Unlike the theoretical perfect competition market, Oligopolies exist in real life. A market structure that is dominated by two companies is known as a duopoly. An example of an oligopoly is the soft drinks market that is dominated by Coca-Cola and Pepsi (Zheng, 2013). Oligopolies can be categorized according to the type of product they produce. The products may be either homogeneous or differentiated. On the one hand, Homogeneous products are produced by a standardized or a pure oligopoly. On the other hand, a differentiated oligopoly produces different products (William & Allan, 2011).
In a Monopolistic Competition market has a structure similar to that of a monopoly and a perfect competition. The market has a large number of sellers. The products being sold by the sellers are not similar. The products compose of goods and services that are of real or imagined characteristics different from those of other goods or services. This differentiation can take many forms. The packaging may be unique; the salespeople may be more persuasive; the services faster or the credit terms better (William & Allan, 2011).
The price elasticity of demand shows the relationship that exists between the price of a product and the quantity demanded. The PED can also be used to calculate the effects of the change in product price on the amount of the product demanded. The rate at which a change in price affects the quantity demanded varies considerably. The PED coefficient
First, a quick review of Price Elasticity of Demand from lecture on 02/19/09. The definition, of Price Elasticity of Demand (PED) is: Price Elasticity of Demand = Percentage Change in Quantity Demanded = %ΔQD Percentage Change in Price
An oligopolistic market is one that has several dominant firms with the power to influence the market they are in; an example of this could be the supermarket industry which is dominated by several firms such as Tesco, Sainsbury’s, and Waitrose etc... Furthermore an oligopolistic market can be defined in terms of its structure and its conduct, which involve various different aspects of economics.
And the way they differentiate their products could be anything. The simplest thing to observe is by looking at their prices over one industry. Because monopolistic competitors are mostly small firms with low capital requirements, so the easiest way for small firms to differentiate their products with other competitors is by using the power that they have as a seller: take control over prices.
Monopolistic competition involves many firms competing against each other, but selling products that are distinctive in some way. For instance, stores that sell different kinds of apparel; eating places or markets that sells a variety of food. You can even think about sporting goods and alcohol. These are items that may be similar to a certain extent, but totally different in terms of perception because of the brands, and how they are marketed. When merchandise is unique, firms can have a mini-monopoly on a certain style or a certain brand. However, the companies that make these products have to compete with other brand names. The term monopolistic competition captures this mixture of mini-monopoly and tough competition.
a) Elasticity of demand are circumstance at which a good or service varies according to prices. These circumstances measures consumers reaction and how they respond to the changes in price by changing the quantity demanded. (PE-of-D = (% Change in Quantity Demanded/% Change in Price)) – When the price for a number of units decreases from positive units pre-dollars to negative units per-dollars, the quantity of units sold increases.
Market structure is the physical characteristics of the market within which companies react. This means that there are different kinds of market structure based on how companies work together within a particular industry. Location and product have the most to do with determining the market structure. There are four defined market types. The first market structure is called the perfectly competitive market. The second market is called a monopoly market structure. The third market is called monopolistic competition market structure. The final market is called oligopoly market structure. Each market structure is different and both benefits and disadvantages
The organization and characteristics of a specific market where a company operates is referred to as market structure. While markets can basically be classified by their degree of competitiveness and pricing, there are four types of markets i.e. perfect competition, monopolistic competition, monopoly, and oligopoly. In perfect competition markets, many firms are price takers whereas monopolistic competition markets are characterized by the ability of some firms to have market power. In contrast, oligopoly markets are those in which few firms can be price makers while monopoly market is where one firm can be a price maker.
An oligopoly is a “market structure in which a few firms sell either a standardized or differentiated product into which entry is difficult in which the firm has limited control over product price because of mutual interdependence (except when there is collusion among firms) and in which there is typically non-price competition” (McConnell and Brue, 2004). As the formation of trusts was restricted in the United States, the oligopoly became the most frequent big-business structure. With four or five large firms responsible for most of the output of each
Price Elasticity of Demand is the theory of elasticity that focuses on the relationship between the price and the demand for a good or service. The study of how sensitive consumers are to a price change, is the study of Price Elasticity of Demand (Anderson). The idea is that when there is a change in the price of a good or service the demand will also change. In order to predict consumer behavior suppliers will study the consumer’s responsiveness to price change. Price Elasticity of Demand is measured by a difference in percent changes. The difference between the percent change in demand and the percent change in price (Anderson). If there is a larger respond in the amount demanded due to the price change the good or
In monopolistic competition, there are a relatively large number of firms, not the thousands of firms as in pure competition. The monopolistically competitive firms produce differentiated products, not the standardized products of pure competition. Product differentiation means that monopolistic competitors engage in some price competition because they have some limited “price making” ability based on the less elastic demand for their particular product. This demand, however, is more elastic than the demand for monopolists’ products. Monopolistic competitors, unlike most
It is important to recognize that consumers will buy less of a product as its prices increases. It is also often important to know whether the increase will lead to a large or small reduction in the amount purchased. Economists have designed a tool called the price elasticity of demand to measure the sensitivity of amount purchased in response to a change in price. The equation for the price elasticity of demand is that the percentage of changes in the quantity of a product demanded by the percentage change in the price that caused the changed quantity. The price elasticity of demand indicates how responsive consumers are to a change in a product price (Gwartney).
When a good or service has only a limited number of sellers and offers the product with little attention to the competition, this is known as an oligopoly. An oligopoly is different than a monopoly because there are multiple firms that are involved; however, the consumer can be affected in the same way. Competition can usually be seen as what’s best for the customer; however, that’s not always the case for the firm. If we observe two firms that have the leading sales in soda, Pepsi Cola and Coca-Cola, we can see how they form a great example of oligopoly. As the information provides, we can see that these two drink companies share about half of the soft drink market.
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
Elasticity of demand helps the sales manager in fixing the price of his product, deciding the sales, pricing policies and optimal price for their products. The evaluation of this measure is a useful tool for firms in making decisions about pricing and production which will determine the total
A market structure in economics describes the state of a market with respect to its competition. There exist several different market structures like perfect competition, oligopoly, and monopolies among others. These markets all produce different types of goods or services, like public and private goods as well as common and collective goods. Firms operating in these different market structures utilize the labor market in very different ways because of very diverse uses of labor in each market structure, so it is important for a firm to use the labor market equilibrium principles to their advantage