There are various market models which form the basis of a particular industry. The market models include monopoly, perfect competition, oligopoly and monopolistic competition. There are certain industries in which, certain changes have been brought in the market model. Due to the changes some consequences do take place. The present paper shall analyze the changes in market model in a particular industry and then, discussion shall be made on various key topics regarding the same.
Description of Industry
The industry selected for purpose of current paper is Food Industry. Food industry is a combination of diversified business organizations to which are engaged in the supply of a majority of food energy consumed by the people around the world. There are various kinds of areas included in the food industry (Stackelberg, 2010). The areas include regulation, education, research and development in food technology, agriculture, manufacturing and food processing. In this way, it can be said that, there are various kinds of things which are to be considered in relation to the food industry in a particular country.
General Patter of Change
Certain forms of changes have been brought in the food industry in the last many years. A few years ago, the food industry was completely in the control of a few organizations such as McDonald’s, KFC and Burger King. With the passage of time, things have changed considerably. Now, various organizations have come into the scene and it is expected that, the competition within the organizations will increase to a considerable extent in the time to come. Earlier the industry was oligopolistic industry but, now this industry has changed to a certain level and it is moving towards turning into a perfect competition form of market structure.
The major organizations in this industry are from the country of China. The Chinese economy is growing at a very rapid pace and there are lots of opportunities for the organizations in the country. Due to this particular thing, the food industry is also growing at a rapid rate. Chinese organizations are gaining strength and due to the same, this market structure has started to change from the oligopoly form of market structure to perfect competition market structure (Wapler, 2003).
Short Run Behavior in Perfect Competition
In the case of a market which has perfect competition form of market structure there are differences in the behavior of market both in the short run and long run. In the short run, the marginal cost of a particular organization is equal to the marginal revenue generated by it. At this point of time, a firm if the price taker and it cannot decide the price of the product in the market. The price elasticity of demand in the case of perfect competition form of market structure is perfectly elastic. This shows that, demand of the products keeps on increasing even when, there is no change in the price of the products. The behavior in the long run is different in comparison to behavior in the short run.
Long Run Behavior in Perfect Competition
In the long run, the supply of products in the market shall increase to a considerable extent. It is expected that, in the long run, higher level of products shall be available in the market. With the increase in supply, prices of the products in this form of market structure will definitely change to some level. The price of the products will reduced at the time to come. When the prices are reduced then, the profits of all the firms in the market are also seeing a decline. There are a few other things regarding this form of market structure in the long run. The long run factors of production are mobile in the long run in comparison to short run. The adjustments to the changing market conditions can be made in the long run. This shows that, an organization can avoid getting into some kinds of problems in the long run such as loss of income or inability to produce the products at a higher level.
Possible Areas Leading to Transaction Costs
Though, in normal situations, there is no area which would lead to transaction costs but, there are certain exceptional cases in which, few areas might lead to existence of transaction costs. The organizations in perfect competition need to find out information about the prices. For generating the information regarding this thing, it will be essential for the organizations to incur certain costs and those costs are treated as transaction costs for the organization. Second area which could lead to transaction costs in a perfectly competitive market is a situation when, a firm is new in the market. In this case, a firm will be required to avail information about the suppliers and the tastes and preferences of customers in the market. The third area is the situation when, an organization offers discount in a perfectly competitive market. In this way, it can be said that, there are three areas which shall result in emergence of transaction costs in the market.
Behavior Resulting from Transaction Costs
There is the likelihood that, some form of changes shall be brought into the market by virtue of the above mentioned transaction costs. In relation to the transaction cost incurred for gaining information about the price in the market, it will be possible for the organization to ensure that, it sets up the prices appropriately. This particular thing will lead to enhancement in competition in the market. Some organizations might believe that, the firm has got access to some insider information. To overcome this particular problem, it shall be important to have a check on the information disclosed in the industry. Secondly, if a particular firm charges higher prices from the customers then, some action must be taken by the industry authorities against that organization.
In relation to the industry, it is necessary to determine some key financial information. The financial information will include revenue generated by the industry, costs incurred by it and other data such as share of organizations in the industry. The government of the United States of America collects certain important data and information about the food industry in the country. The food industry in the United States of America comprises of various franchises from all around the world. The food industry has a total revenue of $126 billion in the year 2011. There is a huge level of concentration in the industry in the present situation. There are 50 major organizations in the country which have a total concentration of 90% in the food industry.
These numbers are increasing rapidly and it is likely that, market structure will change from the oligopoly form of market structure in perfect competition form of market structure. There has been an increase in the products of the food industry to a certain level. The consumer price index has risen by 2.7% in the month of June 2012 in comparison to the same stage in the previous year (Davies, 2000).The data of concentration in the industry can be used by a particular manager for finding out whether, it shall be beneficial for it to enter into the food industry or not. Factors Effecting Degree of Competition in the Industry There are certain factors which affect the degree of competition in the market. The factors include size of the organizations in the market and the number of organizations in the market. If there is any organization which holds monopoly position in the market then, there shall be a situation that, competition shall be lower as it will not be possible for organizations to enter into the market.
The current paper was in relation to the food industry in the country of the United States of America. The Food industry is a major industry in the country. This industry has undergone certain changes in the last many years. There is a large level of revenue generated by this particular industry. The current status of this industry is oligopoly but, it is expected that, it shall change in a short period of time and become a perfectly competitive industry.
Wapler, R. (2003). Unemployment, Market Structure and Growth. Springer. Davies, R.E. (2000). Image Processing for the Food Industry. World Scientific. Stackelberg, V.H. (2010). Market Structure and Equilibrium. Springer.
Courtney from Study Moose