What Are The Features Of Market Structures

3637 Words Aug 25th, 2014 15 Pages
In the real world, firms operate in a large variety of environments based on different market conditions. In order to analyze this real life behavior, economists have identified characteristics that make some firms similar to each other and other firms different from one another.

The most important features of market structures are:
 The number of firms
 The market share of the largest firms
 The nature of costs
 The degree to which the industry is vertically integrated
 The extent of product differentiation
 The structure of buyers in the industry
 The turnover of customers

The study of firms is based on the following categories of market structure: monopolistic competition, oligopoly and duopoly. The
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Barriers to entry, in turn, have three sources:

• A key resource is owned by a single firm
• The government gives a single firm the exclusive right to produce some good
• The costs of production make a single producer more efficient than a large number of producers.

Case study: The gas industry in south-eastern Australia
In Victoria, New South Wales and South Australia, single sellers provided almost all natural gas. Natural gas for Victoria came from fields in the Bass Strait, controlled by a joint venture between Esso and BHP Billion. Gas for New South Wales and South Australia came from the Cooper Basin, which is also controlled by a single joint venture. In Victoria, most natural gas is purchased for domestic use such as cooking, central heating and hot water.
Household demand for natural gas is unlikely to decrease in short term because consumers wouldn’t give up gas stove or hot water system if the price goes up, however there will probably be significant substitution of alternative fuels in the long term. When the price is increasing, household may replace gas system with solar hot-water or electric system. Therefore household demand for natural gas may be fairly inelastic over short term but is likely to be elastic over next 5 years or even a decade.

In contrast, natural gas in NSW is largely used by industry. Many of the firms that rely on natural gas,

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