Market_Structures

Differentiating Between Market Structures Not every industry is exactly the same. They have characteristics that set them apart from each other. The interconnected characteristics of a market are known as the market structure. Industries are put into categories based on what is produced, how it is produced, and who is going to buy it once it is produced. The market structure is the structure of these categories. There are four basic types of market structures; perfect competition, monopolistic competition, oligopoly, and monopoly (Hubbard, 2010). A perfect competition market must have buyers and sellers and must be producing the same things; farmers are an example of a perfect competition. A monopolistic competition market sells a differentiated product; examples of this market structure are restaurants and clothing stores. An oligopoly is a market structure where a small number of manufacturers compete; an example of an oligopoly market is manufacturing computers. The fourth and final market structure is the monopoly market. This is a rare business that is selling something unique, like the United States Postal Service is a monopoly. Goods can be considered rival, excludable, non-rival or non-excludable. Rival goods are goods that only one person can consume while excludable goods are goods that if a person does not pay for it they are unable to consume that good. Non-Rival goods are when any one person consuming a good does not matter in regards to another person consuming that good. Non-excludable goods are just the opposite of excludable goods. One cannot be excluded from the good even if they do not pay for it (Hubbard, 2010). Public goods can be considered non-rival and non-excludable. Public goods can be things such as police or firemen. These are goods that if one person consumes them it does not affect someone else consuming it and public goods are also goods that if they are not paid for anyone can still consume the good. Private goods are known as rival and excludable. Private goods are items that if one person consumes the goods no one else is able to consume the same good. They are also goods that if one does not pay for it they are unable to consume said good. An example of a private good is a sandwich. It is not possible for a sandwich to be eaten by one person and then consumed by another individual. A sandwich maker can also refuse to give someone a sandwich if they do not pay for the goods. Common resources are, like private goods, rival and, like private goods, non-excludable. “Forest land in many poor countries is a common resource. If one person cuts down a tree, no one else can use the tree. But if no one has a property right to the forest, no one can be excluded from using it” (Hubbard, 2010, pg. 148). This is a good example of a common resource by showing how it is a rival good and a non-excludable good (Hubbard, 2010). A natural monopoly is when one firm is able to provide their goods to an entire market at a much smaller cost than having more than one firm provide the same services. A water company would be an example of a natural monopoly. Having two water companies in one city is not beneficial and it would cost less to have one running pipes for water than to have two. The labor market equilibrium (when quantity demanded equal quantity supplied), is affected by the changes in supply and demand of labor. This increase or decrease will have either a negative or positive effect on the labor market equilibrium. The supply of labor tells us the amount of work people will offer to do at various costs. Each worker will have a different supply curve, which may be attributed by variances in expenses and preferences. The demand for labor shows us the amount of work a company wants and is willing to pay at various prices.  As in the supply labor each worker will have a different demand curve due to, “each firm faces different labor substitutes (differing rates of potential capital substitution),” (LaFaive, 2001). The labor market equilibrium is then affected by these two factors in several ways. There could be an increase in the supply of labor due to, an increase in wages, population growth, and more women coming into the workforce then before. There can also be a decrease in supply of labor because of a decrease in wages and changes to people’s views about work. Price also affects the demand of labor by an increase or decrease in personnel, when the price of the unit of labor and productivity decreases, and then there is an increase in the demand of labor. The organization that was chosen for this paper’s analysis on market structure is General Motors, GM, the automobile manufacturer. The General Motors market structure is an oligopoly. General Motors is a differentiated oligopoly, in that the products they manufacture differ physically from similar products manufactured by other automobile manufactures. For example, General Motors is the umbrella for brands such as Chevrolet, Cadillac, and Buick while Chrysler is the umbrella for brands such as Dodge, Chrysler, and Jeep. There is extensive competition between automobile manufacturers and they rely heavily upon advertising to secure sales. The main barrier of entry into the automobile manufacturing industry is the very high initial capital requirements. They need to be able to obtain the necessary plants and equipment easily in order to start their businesses. Without this type of capital available for immediate investment, these companies would turn into high-cost producers and in effect would not survive in the market. Being an oligopolistic organization, General Motors is a price maker: they set the prices and output quantities for their automobiles in ways that maximize their profit; however, they must take into account the pricing structures of their competitors so as not to make themselves lose their own potential profits. This market structure is appropriate for this type of manufacturing industry because, with the extensive start up costs associated with it, it limits who can enter into the market. In the automobile industry there are many factors that affect labor supply and demand. The tables below summarize some of the factors that may affect labor supply and demand: Labor Supply Determinants: |Factors |Description | |Change in retirement age/early retirements |The labor supply will decrease if there is a rapid increase in early | | |retirements. The per-unit production cost will increase, increasing | | |the cost to manufacture the automobile and decreasing the supply. | |Change in immigration laws |Labor supply will increase if there is substantial immigration. The | | |per-unit production cost will decrease, decreasing the cost to | | |manufacture the automobile and increase the supply. | |Change in technological innovations |Labor supply will increase if there is more technological innovation | | |introduced into the manufacturing process. More robotics on the | | |assembly line means there is not a need for human labor. This | | |decreases the number of people employed and increases the labor | | |supply. | Labor Demand Determinants: |Factors |Description | |Change in product demand |People decrease their demand for automobiles, decreasing the demand | | |for assembly line workers. | |Change in productivity |Increased use of robotics on the assembly line increases productivity | | |and decreases the need for human labor on assembly line. | |Change in pricing of another resource |Increased pricing for electricity in the assembly factory increases | | |the cost to manufacture the automobile and decreases the demand for | | |assembly line workers. | The concept of market structure is vital to both economics and marketing. Both submissions are concerned with planned decision making. In decision-making analysis, market structure has an important role through its impact on the decision-making environment. The four categories of the market structure are necessary for the world to evolve. These four types of market structures are different enough to be needed and understood. With the perfect competition the farmers are needed to produce the food. With the monopolistic competition the clothing stores are needed for something to wear and the restaurants for the food and good times we crave. The oligopoly market is necessary for technological advances that are being made. And the monopoly market, utilities are an important part of life. Sure, people could live without them, but who would want to' References Hubbard, R. & O’Brien, A. (2010). Economics (3rd ed.). Boston, MA: Pearson Hall. LaFaive, M. D. (2001). Supply and Demand and the Labor Market. Retrieved from Mackinac Center for Public Policy: http://www.mackinac.org/article.aspx'ID=3818 McConnell, Campbell R. and Brue, Stanley L. (2008).  Economics: Principles, Problems, and Policies.  New York, NY:  McGraw-Hill.