Differentiating_Between_Market_Structures

Differentiating Between Market Structures A. Clontz-Prater, C. Edwards, G. Sturdevant, T. Valentine September 20, 2010 ECO/212 Shauna Whitcomb Differentiating Between Market Structures To differentiate between market structures one must be able to determine whether a product is a public good, private good, common resource, or a natural monopoly. To differentiate between market structures it is also extremely important to have an understanding of how the labor market equilibrium is affected by the supply and demand of labor. To arrive at a better understanding of how to differentiate between market structures Team A has taken an in-depth look at the organization Verizon. Verizon’s market structure has been evaluated to determine the effectiveness of its structure. Additionally, the factors that affect Verizon’s labor supply and demand have been summarized below. Public Goods, Private Goods, Common Resources, and Natural Monopolies A public good is one that is available to the majority, and the consumption of it does not decrease the consumption of others. Telephone service providers such as Verizon Wireless are a fine example of a public good. A private good is the opposite of a public good, therefore it is restricted and only few have access to it. Public and private goods can be rivalrous or non-rivalrous, excludable or non-excludable. Rivalrous means that there is a type of competition to having a vested interest in the good. Excludable means that access to this item is not accessible to everyone. Both types of goods can have four different access points. They can be rivalrous and excludable, rivalrous and non-excludable, non-rivalrous and excludable, and non-rivalrous and non-excludable. (Hubbard & O’Brien, Economics, p. 148) As seen from the graph above, many of the items are things that most people use on a regular basis, especially private goods. Common resources are resources that are available to everyone. When a corporation has all total access and control over a good, they are considered a natural monopoly. Monopolies are very rare but in some cases, they do exist. How Labor Market Equilibrium is affected by Labor Supply and Demand According to Hubbard and O’Brien (2010) “when the demand for labor and the supply for labor intersect, or meet, equilibrium occurs” (p. 529). The demand curve for labor represents the amount of income or wages an employee will receive, whereas the supply curve for labor represents the quantity or amount of labor. As the amount of labor productivity rises for Verizon, the demand for labor will increase. Either more employees will have to be hired, or employees will have to put in extra hours to fill the demand increase. If Verizon’s supply of labor does not increase the equilibrium wage will increase and additional employees will need to be taken on. Economics (2010) states “When the labor supply does not change, as the amount of labor increases, the equilibrium wage and the amount of employees will increase” (p. 529). If Verizon’s demand of labor does not change the equilibrium wage will decrease and the number of employees will increase; as Verizon experiences an increase in its labor supply, the number of employees will decrease. The amount of income an employee receives at Verizon, and in other markets, will depend upon whether the demand for labor increases faster than the labor supply. The Market Structure of Verizon Verizon’s wireless services can be categorized as an oligopoly. The definition of an oligopoly is “the market condition that exists when there are few sellers, as a result of which they can greatly influence price and other market factors” (Dictionary.com). Beside Verizon Wireless, other companies in the wireless market are AT&T, Sprint, and T-Mobile. Verizon Wireless and AT&T hold nearly equal shares of the wireless market at 35% and 34% respectively, followed by Sprint at 16% and T-Mobile at 14% (Verizon.com, AT&T.com, Sprint.com, and Tmobile.com). In addition to retail wireless services to 85 million subscribers, Verizon is also the leader in the business communication field with nearly five million subscribers. New to Verizon is FIOS, its fiber-to-home network offering hard line telephone service along with Internet and television services. Along with its wireless services, Verizon stands poised to speed past AT&T with its service bundling. Bundling services is one way communications companies are capturing their respective audiences by offering discounted prices to house-holds with multiple services (Verizon.com). Factors Affecting the Labor Supply and Demand of Verizon Many factors affect labor supply and demand for Verizon. Factors such as change in technology, change in taxes, change in the prices of other goods, change in the number of suppliers, and change in producer expectations. Verizon broadband providers using infrastructure previously designed for telecommunications, cable, wireless, and satellite services are competing for broadband customers. Such competition has increased the speed, quality, and sophistication of broadband services while leading to decreased prices per megabit over time (Verizon Communications Primer-Broadband and the Future, 2008). Telecommunications carriers and their consumers face numerous tax burdens. Taxes and surcharges collected by these organizations are 911 or E911 taxes, federal excise taxes, sales taxes, municipal surcharges and fees, local number portability charges, federal universal service fund surcharge, and FCC line charges. The gross receipts tax surcharge is a tax levied by state governments, and passed through to the customer, on all utility companies doing business in a certain jurisdiction. Verizon FIOS is the largest fiber-to-the-home network in the country and has rolled out 4G technology, the newest generation of wireless broadband. Suppliers are critical to the success of the business, and the customer support of Verizon. Verizon relies on its suppliers to provide the quality products and services need to deliver high growth communications services to their customers when they need them, and at a price they can afford (Verizon Supplier Community, 2010). John F. Killian, Verizon’s chief financial officer, states “Verizon along with its alliance with Google developed six smart-phones that use the Android operating system, and the investment is paying off” (Wortham, 2010). Important Factors when Determining an Organization’s Market Structures Supply and demand are important factors to think about when reviewing a company and their financial situation. Those factors help companies such as Verizon decide how big the company’s labor force needs to be and what products to produce. Supply and demand also help determine if the company can provide additional services to new and existing customers based on the competition of other companies. As an oligopoly, Verizon only competes with a few other companies, which is beneficial to Verizon’s bottom line. References AT&T 2009 annual report. www.att.com. Retrieved September 14, 2010 Dictionary.com. www.dictionary.com. Retrieved September 14, 2010 Economics (3rd Ed) (2010). R., G., Hubbard and A., P., O’Brien. Prentice Hall. Pearson Education, Inc. Retrieved on September 16, 2010 from University of Phoenix e-text. Sprint 2009 annual report. www.sprint.com. Retrieved September 15, 2010 T-Mobile 2009 annual report. www.tmobile.com. Retrieved September 15, 2010 Verizon 2009 annual report. www.verizon.com. Retrieved September 14, 2010 Verizon Communications Primer-Broadband and the Future (2008). Retrieved from http://responsibility.verizon.com/primer/broadband.html Verizon Supplier Community (2010). Retrieved from http://www22.verizon.com/suppliers/index.jsp Virginia.Gov. (2010). Retrieved from http://www.tax.virginia.gov/site.cfm'alias=communicationstaxes Wortham, J. (07/24/2010). New York Times Business Day. Retrieved from http://www.nytimes.com/2010/07/24/business/24verizon.ht