Market_Structures_and_Maximizing_Profits

Market Structures and Maximizing Profits The competitive market structure is characteristic of perfect competition. Competitors have no market power. Conditions for competitive markets are strict and there are few, still the concept is useful in real life markets. (Wikipedia, 2010). The main characteristic of a competitive market is price taking; no single participant influences the price of selling or buying. Competitive markets have infinite buyers and sellers means that the products have unlimited buyers to buy at a certain price and unlimited sellers or suppliers to produce products for sell at a certain price. (Wikipedia, 2010). Competitive markets have no barriers for entry or exit, it is easy to enter into the market and exit the market. Prices and quality of products are known by both consumers and manufactures of products being sold on the market, and there are no cost related to the exchange in the market. In a competitive market companies sell products in relation to marginal cost and marginal revenue to maximize profit. Products or services pricing vary little from suppliers. (Wikipedia, 2010). The short-Term of competitive market are not efficient, output where marginal cost are concerned is equal to average cost, however output will occur where marginal cost is equal to marginal revenue, therefore marginal cost equals marginal revenue. In the long-term such markets are productively efficient. (Wikipedia, 2010). Any profit-maximizing producer is faced with price equal to marginal cost, in turn factors of price equals factors in revenue. This allows derivation on supply and demand in the competitive market. (Wikipedia, 2010). Price is determined in competitive markets are looked at in two ways; neo classical, and competition. One agent cannot affect prices the agent is either so small or their presence or absence leaves the equilibrium of the market unaffected and assumes a negligent impact by postulating a continuum of infinite agents. (Wikipedia, 2010). Secondly, in view of competitive market there is the conception in terms of agents taking advantage of profitable exchange opportunities. The faster this takes place the more competitive the market. The adjustment of price is relative to supply and demand and takes place instantaneously. (Wikipedia, 2010). Monopolies differ from competitive markets in that they exist based on an individual, or enterprise having control over a particular product or service. Monopolies determine the terms on which individuals have access to the product or service. This market structure is characterized by lack of economic competition, and lack of substitute goods. The term monopolize refers to how a company gains persistent market share than what is expected in a competitive market. (Wikipedia, 2010). Monopolies control a certain sector of the market which allows pricing and consumer elective. A monopoly can decide who to sell to and determine the price of the product or service based on supply. The demand in a monopoly’s product or service is subjective to its pricing. These elements are known as market power. Monopolies tend to produce fewer goods and sell them at higher prices. (Wikipedia, 2010). Interestingly monopolies can form naturally or through mergers. The competition is faced with entering into the market at the monopolie’s mercy. A monopoly will allow a competitor to form and then by it out from under them. One can find this coerciveness in chain stores. (Wikipedia, 2010). According to Wikipedia (2010), In general, the main results from this theory compare price-fixing methods across market structures, analyze the impact of structure on welfare, and play with different variations of technological/demand assumptions assessing its consequences on the abstract model of society. (Market structures, para. 1). Monopolies derive their market power from barriers to entry - circumstances that prevent or greatly impede a potential competitor's entry into the market or ability to compete in the market. They are barriers to entry; economic, legal and deliberate. (Wikipedia, 2010). Including barriers to entry and competition are barriers to exit; these indentify a source of market power. Barriers to exit are market conditions that make it expensive for a firm to leave the market. High liquidation costs are a barrier to exit. (Wikipedia, 2010). Oligopoly is a market form in which a market or industry is dominated by a small number of sellers (oligopolist). Each oligopolist is likely to be aware of the actions of the others. The decisions of one firm influence the decisions of other firms. (Wikipedia, 2010). | Oligopoly is a common market form. As a quantitative description of oligopoly, the four-firm concentration ratio is often utilized. This measure expresses the market share of the four largest firms in an industry as a percentage. For example, in 2008, Verizon, AT&T, Sprint Nextel, and T-Mobile together control 89% of the US cellular phone market. (Wikipedia, 2010). Reference Page Wikipedia. (2010). Monopoly. Retrieved from http://en.wikipedia.org/wiki/Monopoly