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Market Structure Project
Transcript of Market Structure Project
Case study: Forever 21
Market Structure Project
Perfect competition is a hypothetical market in which competition is at its greatest level. In order to make money, the seller must sell their product at market price which is generally ideal for the consumer.
A particular market is controlled by a small group of firms
Industry example: Wireless providers
Case Study: Verizon, AT&T, Sprint, and T-Mobile
Corporations in the wireless provider industry provide cell phone coverage and data. The four largest corporations in the U.S. are Verizon, AT&T, Sprint, and T-Mobile, and they all share the majority of control in the wireless provider market. While they are each independent corporations, they must take into consideration the reactions of their competitors before making business decisions such as changing their prices. If Verizon lowered its prices slightly, the other three companies would each make an immediate attempt to lower their prices even more. Therefore, prices tend to be rigid amongst companies in an oligopoly. These firms have more control over prices than in a monopolistic competition market because of the small amount of sellers. Firms have little freedom to enter and exit the market; each corporation is large enough to create barriers to entry to smaller firms who wish to enter the market. Wireless service is relatively standardized; there is not much difference across providers' plans.
Stores that operate in the retail clothing industry sell clothes, shoes, and accessories. Depending on the type of goods produced, retailers promote the usage of these goods in certain climates and occasions (formal or informal) and target them to certain demographics. There is much competition in this industry; though no two stores are identical, there are differences in the style, quality, and variety of goods produced. Because of this variety, substitutions are available but are not identical to the substituted good. Due to product differentiation, retailers have limited control of prices. Clothing retailers may enter and exit the market as they please. There are many different retailers and many, many consumers.
Forever 21 sells stylish clothing and accessories appropriate for all climates as well as body types of both males and females; the retailer targets primarily young adults. This store is one of many producers and has a lot of competition; retailers such as Zara, Topshop, Express, and Urban Outfitters, among many others, sell similar types of clothing and accessories that may be substitutable but not perfectly so. Because of all the competing retailers and products, Forever 21 has limited control of its prices. Forever 21 entered the market and may leave it if the executives believe it is best for the company to do so.
A single business is the entire industry, there is only one seller.
Entry into the market is restricted.
Monopolies can be characterized as natural, government, technological, or geographic.
Prices are controlled because there are no close substitutes.
Industry Example: Mail Service
Case Study: US Postal Service
The only first class mail service in the United States is the US Postal Service. This is an example of a government monopoly because USPS is the only company which is allowed to deliver first class mail. Private companies are not allowed to enter the market for delivering first class mail, therefore, there are no close substitutes for mail delivery. The prices are determined by USPS because there are no competitors, so USPS regulates their own price, making it the price maker.
Monopolies are a type of market structure where one company or group owns all of the market for a particular good or service. This style of market is the least competitive.
There are no barriers to enter or leave the market for companies.
All companies produce the same good or service which means there are many substitutes.
There are many buyers and sellers, no one buyer or seller has control over market price.
The buyers and sellers are informed on what others are charging and what buyers are willing to pay.
Industry Example: Corn
Case Study: Farmer's Market
There are many producers who sell corn, therefore, no one farmer can set and control the price; they must base their prices off of the market price. If farmer #1 and farmer #2 both set up booths at a local farmers market, each farmer decides for himself how much corn to produce to sell at market price. Corn is generally the same no matter where or who it is purchased from so consumers typically won't pay more than market price. Farmer #1 and #2 must sell corn at the same price in order to make a profit.
There are many sellers and many buyers
Firms make similar, though not perfectly substitutable, products
Firms have the freedom to enter or exit the market.
Firms have a limited control of prices due to product differentiation
Firms have many different competitors, but each one sells a slightly different product.
"Economics Online." Monopolistic Competition. Economics Online Ltd, n.d. Web. 28 Mar. 2015.
"Economics Online." Oligopoly. Economics Online Ltd, n.d. Web. 28 Mar. 2015.
"Monopolistic Competition Definition | Investopedia." Investopedia. Investopedia, LLC, 21 Jan. 2004. Web. 28 Mar. 2015.
"6 Essential Characteristic Features of Oligopolistic Market." 6 Essential Characteristic Features of Oligopolistic Market. PreserveArticles.com, 2012. Web. 28 Mar. 2015.
Meek, Sally. "Chapter 7: Market Structures." Economics: Concepts and Choices. Orlando: Holt McDougal/Houghton Mifflin Harcourt, 2011. Print.
There are few sellers and many buyers
Products are standardized or differentiated
Firms have some control over prices
There is little freedom to enter or exit the market due to barriers to entry; firms maintain their dominance in the market by creating barriers to entry, meaning that they make it too costly and/or difficult for others to enter the market.
Price rigidity: Because firms must always consider competitors' reactions to their actions, prices tend to remain constant
Types of Monopolies
Natural monopolies occur when it is more efficient for one company to compete for business.
Government monopolies occur when the government provides goods or services that can't be provided by private firms.
Technological monopolies occur when a certain firm controls a manufacturing method, an invention, or a type of technology.
Geographic monopolies occur when there are no other producers or sellers within a certain region.
Same same but different: An Asian-English phrase commonly used by vendors in Southeast Asia to get customers to buy a product that is similar to a product the customers have expressed interest in but are unsure of buying.