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In Economics, market structures are broken down into 4 primary structure types
This paper will elaborate on how they are broken down by variables, such as how many buyers and sellers, expense and direct competitors. The rate for the consumer is affected under these structure types and this paper will explain the 4 different types and how the consumer cost is affected. After each of the four structures is broken down, I will use Apple as an example and describe its intricate market structure.
Perfect Competitors has a great deal of purchasers and sellers in a market where the good or service is identical. This requires the seller to accept the going rate on their item. The seller is not able to control the market rate. The great or service is extremely typical and the info of the excellent or service is well known by the customer. Due to the a great deal of sellers the consumer is able to choose, this can be based on rate and overall product quality.
The price of the good or service is not controlled by market price, but only by supply and demand. An example of perfect competition is a farmers market where sellers are selling the same tomatoes. Monopolistic Competition has a large number of buyers and sellers, but the good or service is similar, not identical. The seller has some choice of in the asking price of the good or service, but not drastic change in price over the market price.
The consumer typically does not have all the information about the good or service. An example to think of, as a monopolistic competition is shoe manufactures. Oligopoly has a large number of buyers, however there is a handful of sellers. The good or service is very similar, and the consumer does have information about the item. With only a handful of sellers the price is typically influenced to maximize profits. This has been done and is called market sharing, or collusion, as used by OPEC (Organization of the Petroleum Exporting Countries). Monopoly can have a small or large number of buyers, but only have one seller of a good or service. There is no competition for the good or service so the seller has complete control of the market, and the seller will use this power to maximize profits. The seller has the opportunity to decide the amount of goods and service to provide, which can be used to alter supply and demand to their benefit.
An example of a monopoly would be pre 1911 Standard Oil that had a control of the oil business in the world, but was broken up into smaller companies. The United States Supreme Court ruled this to be an illegal monopoly. The pricing strategies differ for the four main market structures. Perfect competition is primarily set by market value. The reason for this is the large amount of buyers and sellers. If a seller was to raise the price, the buyer would have many other choices found at the market price. Monopolistic competition has many buyers and sellers, just as perfect competition does, but the seller’s good or service is not identical. This allows for the seller to adjust the price over the market price, but the same rules apply if the seller raises the price to drastic as perfect competition. Oligopoly is most commonly thought of the larger companies who have primary control of the market and can influence the price to maximize profit. They are able to do this by making it difficult for smaller companies to enter the industry. The price that they can manipulate out of consumers is normally because these larger companies have a similar business plan.
Monopolies control a 100% of their competing market, which allows them to demand much higher prices. They can manipulate the supply and demand of their product driving the price up within means of what can be considered illegal. The example I will be using is Apple’s market structure on the technology industry. Apples market structure varies, depending on the market. The three main markets they specialize in are smartphone, computer operating systems and digital music players. Their smartphone market is an oligophy market because there are a few large manufactures such as HTC, Samsung, Nokia and RIM. When it comes to their computer operating system the market system is a lot like oligopoly, because there are two large competitors, Windows and Apple, making it a duopoly structure. The market where it can be argued that Apple is in complete control, a monopoly, is the digital music market. In the digital music market there is a very limited amount of competitors that measure up to Apple’s IPod. Apple can be considered a monopoly in the technology industry because they are highly competitive in these markets and their profits show this. The pricing strategy used by Apple for their products is considered by facts related to the market history. Here is a good description why:
Once you have accomplished such accolades as Apple has, your pricing strategy is premium. They do still have to consider the markets where there are more competitors for pricing. However, they are still able to charge a little higher because of their different markets that interlink. A survey I found states: More than 51 percent of the public owns an Apple product, with one in three owning more than one. The median American household has 1.6 Apple products. (Liesman, 2012) Enough said Apple is awesome!
In conclusion, this paper has provided a glimpse of the four main market structures and their pricing strategies. As noticed perfect competition is not as common as the other three. Oligopy and monopoly are very similar because of their way to drive the market price up and that is because they both control the majority of the market respectively. My real world example of Apple shows how a company can have a complex market structure by having oligopoly markets that encourage a monopoly on the industry.
How does Apple do it? Case study on Premium Pricing. (31 March 2012). Retrieved November 14, 2013, from http://www.smallbizviewpoints.com/2012/03/31/how-does-apple-do-it-case-study-
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