The utility of the free market structure Essay
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Examine the utility of the free market structure in promoting technology development. Market structures have a role in promoting technological progress. There are four market structures which are; pure competition, monopolistic competition, pure monopoly and oligopolistic firms. Each of these market structures have strength and shortcomings in relation to technological advance. However the oligopolistic or free market structure has more strength than shortcomings in promoting technology.
This essay is going to examine the utility of the free market structure in promoting technology. As a first step towards doing this, the paper shall attempt to give definitions of key terms which are; free market structure and technology. It will also survey the strength and shortcomings of free market structure in relation to promoting technology. The paper will to a greater extent describe the characteristics and behavior and the free market structure which makes it conducive for promoting technology. These characteristics shall include; large size of firms, existence of barriers, large and broad scopes of research and development activity.
The behavior shall include interdependence and non- price competition. Insopedia financial dictionary defines the free market structures as characterised by a small number of large firms that dominate the market selling either identical or differentiated products with significant barriers to entry into the industry.
Oligopolistic industries are as diverse as they range from breakfast cereal to cars, from computers to aircrafts from television broadcasting to pharmaceuticals, from petroleum to detergents. Technology is defined as the purposeful application of information in the design, production and utilization of goods and services and the organization of human activities (business dictionary). Technology generally divided into five catagories ; tangible intangible, high, intermediate and low. Free market structure is a market structure characterized by a small number of large firms that dominate the market, selling either identical or differentiated products, with significant barriers to entry into the industry. Oligopolistic industries are as diverse as they are widespread, ranging from breakfast cereals to cars, from computers to air craft, from television broadcasting to pharmaceuticals, from petroleum to detergent. Of the four market structures, oligopoly is the most likely to develop the innovations that advance the level of technology, expand production capabilities, promote economic growth and lead to higher living standards.
Oligopoly has both the motive and opportunity to pursue innovation. Motives comes from interdependent competition and opportunity arises from the abundance of resources and barriers to entry (AmosWeb2000—2014). Many characteristics of oligopolistic are conducive to technological advance. Firstly an oligopolist is dorminated by a small number of firms, each of which is relatively large compared to the size of the market. This generates substantial market control, the extend of market control depending on the number and size of firms. The large size of oligopolists enables them to finance the often large research and development costs associated with major product or process innovation. In particular, the typical oligopolist realizes an on-going economic profit serves as a major source of readily available, relatively low cost funding for research and development. Moreover, the existence of barriers to entry gives the oligopolist some assurance that can maintain any economic profit gains from innovation. Firms in or oligopolist industry attain and retain market control through barriers to entry.
The most common barriers to entry include patients, resource ownership, government franchises, start-up cost, brand name recognition and decreasing average cost. Each of these make it extremely difficult, if not impossible, for pontential firms to firm to enter. Olipologists also have a large volumes of sales, these enables it to spread the cost of specialized research and development equipment and terms of specialized researchers over great many units of output. Even the broad scope of research activity with oligopolists firms help them offset the inevitable research and development “misses” with more than compensating research and development “hits”. Thus oligopolists clearly have the means and incentive to innovate. Interdependence that exist in oligopolists also motivates promotion of technology. Each oligopolistic firm keeps a close eye on the activities of other firms in the industry. Decision made by one firm invariably affects others. Competition among interdependent oligopoly firms is comparable to a game or athletic contest. One team’s success depends not only on its own actions but on the action of the other competitor. Oligopolist engage in competitions among the few.