Market_Structures

March 29, 2011 Differentiating Between Market Structures A market structure is a theoretical model of the way an industry operates. All industries may not all fit into a particular market structure, but theoretical models help to analyze the behaviors of firms in the marketplace. In this paper, the main points of discussion will be focusing on comparing and contrasting between public goods, private goods, common resources, and natural monopolies, how labor market equilibrium affects the supply and demand of labor, the characteristics of Apple as an oligopoly, the effectiveness of Apple as an oligopoly, and the factors that affect the labor supply and demand for Apple. Comparing and Contrasting Public Goods, Private Goods, Common Resources, and Natural Monopolies. Economists define public goods as non-rival and non-excludable. The benefits of public goods are spread throughout a community even if consumers decide not to purchase a good or service. An example of public goods would be national defense, the Department of Education, research companies, and the Department of Interior. Consumption of public goods by one individual does not reduce its availability to others. Private goods are just the opposite they are rival and excludable. Generally, private goods are offered by private firms. When consumers have the money, they purchase private goods. Examples would consist of food and clothing. Public goods are made available because individuals can gain use from them without paying for the good or service. Common resources provide users with tangible benefits. These kinds of resources come in natural forms like forest, lakes, rivers, or man-made irrigation cannels and reservoirs. Common resources can be owned by national, regional, and local governments as public goods or by private individuals and firms as private goods. Common resources, however, can help a company turn into a natural monopoly. Natural monopolies exist as a result of the high fixed or startup cost of operating a business in a particular industry. The most common examples of natural monopolies are railroads, pipelines, and water supply systems. Aluminum Company of America (Acola) and International Nickel Company of Canada are natural monopolies in Canada that help control key natural resources. International Nickel Company of Canada controls more than 90% of available nickel supplies in the world. Labor Market Equilibrium The equilibrium in a labor market occurs when the demand curve for labor and the supply curve for labor intersect (O'Brien, 2011, p. 529). The labor market equilibrium of demand and supply is affected by several factors that can shift each market. The demand for labor curve cannot be considered the same way demand for a final product or service is because it is a derived demand. A derived demand is the demand for a factor of production; it depends on the demand for the good the factor produces (O'Brien, 2011, p. 522). Two primary factors determine demand of labor. The additional product that can be produced by hiring one more worker and the additional revenue received from selling the additional product. The five major factors that shift the demand curve of labor are an increase in human capital, changes in technology, changes in the price of the product, changes in the quantity of other inputs, and changes in the number of firms in the market (O'Brien, 2011, p. 526) . The supply of labor curve can be determined by goods and service, adding up the quantity of labor supplied by each worker at each wage, holding constant other variables that may affect the willingness of workers to supply labor (O'Brien, 2011). Factors that shift the supply curve are increase in population, changing demographics, and changing alternatives (O'Brien, 2011). The wages a worker receives will change the amount of time a worker spends at work. If the worker determined that the amount of pay from spending time at work has more value over engaging in leisure activities, the worker will work more hours. The market equilibrum will shift because of a few factors. If a worker’s productivity increases, the marginal product increases, causing the labor demand curve to shift. In turn, the equilibrium wage will increase and the employment level will rise. Market Structure Characteristics of Apple Apple has become synonymous with innovation. Consumers stand in long lines for hours and pay astronomically high prices to have their electronic gadgets in their possession.When determining a market structure for Apple to fit into, two categories can rightfully fit the description because not all firms fit perfectly into a particular market. First, looking at the definition of a monopoly means exclusive control of a commodity or product in a given market. The iPod by Apple controls 80% of the market share for MP3 players. Many claim that Apple built a vertical monopoly in the market based on the achievement of iPod models, along with the iTunes platform and the fairplay digital rights management system. Until recently, digital rights management acted as an obstacle to enter in the market of audio and digital media players because fairplay did not permit consumers the ability to purchase songs from iTunes and use those songs on MP3 devices other than Apples iPod (Riley, 2009). Oligopoly is defined as a market dominated by a small number of participants who can exert control collectivley over market prices. Apple currently has a contract with Verizon and AT&T for the iPhone. Identical or differential products are also are key components of an oligopoly. The iPhones offered by both carriers are similar in design but have a few different capabilities for the product such as the ability to browse and talk at the same time, hotspots, streaming speeds, etc. The last characteristic of an oligopoly would be significant barriers to enter the industry. This has proven to be a barrier for many carriers because Apple chooses what companies it wants to carry the iPhone. Currently, the only carriers who have the rights to sell the phone are Apple, Verizon, and AT&T. All these characteristics fall into the category of an oligopoly. Evaluating the Effectiveness of Oligopoly for Apple The main good that Apple produces that identifies it as a company in the oligopoly market structure is the personal computer. “The four largest firms-Hewlett-Packard, Dell, Acer, and Apple-sell 75% of all the desktops and laptops sold in the United States” (Hubbard & O'Brien, 2010, p. 433). Apple is very effective as an oligopoly company. The proof is Apple’s recognition as one of the largest companies in the world. “A key part of Apple’s business strategy in the computer market has been to concentrate on selling well-designed but higher-priced machines” (Hubbard & O'Brien, 2010, p. 431). Part of Apple’s success depends largely on the development of its own operating system and associated software for its personal computers. Apple continues to generate revenues of over a billion dollars annually. Barriers to entry like economies to scale give new firms difficulty when trying to enter an oligopoly. Apple can spread the high fixed costs of producing computers, including the expenses of research and development, over a larger quantity of computers (Hubbard & O'Brien, 2010, p. 433). “Apple became the largest company in the tech universe, and after Exxon Mobile, the second largest in the nation” (Manjoo, 2010, p. 68). This displays Apple’s effectiveness as an oligopoly company. Many industries, including firms not in the computer manufacturing industry, strive to duplicate Apple’s success. Factors that Affect the Supply and Demand of Labor for Apple Apple has more visitors frequenting their stores than Disneyland and Disneyworld combined. (Justin Rohrlich, 2010). Having more than 20,000 employees in 173 retail stores they have globally. (Yahoo, 2007). Labor market equilibrium occurs when there is a stable balance in workers employed for a business. The supply and demand of labor signifies how much labor a worker is willing to offer to the company at the prices employees are being paid. (Michael D. Lafaive, 2001). A good example is the iPad2 with its high volume of demand and such low amounts produced, workers may not be satisfied with the payment they receive. The iPad2 can also cause a problem with the sales floors associates working longer hours to accommodate consumer’s high demand for the iPad2. Conclusion In conclusion, the differences between public goods and private goods were identified. Both could appear as a common resource. Some common resources could transform companies into natural monopolies. Several factors caused a shift in the labor market equilibrium of demand and supply. The characteristics of Apple displayed it as both a monopoly and an oligopoly, depending on the goods or services it provided. As an oligopoly, Apple was very effective. Other industries wanted use Apple as model for success. New products have an effect on the labor supply and demand for Apple. Apple is recognized worldwide for its high-quality products. Apple is also respected for existing as a one of the largest and best businesses in the world. References Apple, Inc Company Supply, Demand and Financial Status. (November, 2007). Retrieved from http://www.associatedcontent.com/article_inc_supply_demand_a Hubbard, R., & O'Brien, A. (2010). Economics (3rd ed.). Boston, MA: Pearson Hall. investorwords. (2011, March). investorwords.com. Retrieved from http://www.investorwords.com/3404/oligopoly.html Lafaive, M. D. (2011, March). Supply and Demand and the Labor Market. Retrieved from http://www.mackinac.org/3818 Manjoo, F. (2010). Apple Nation. Fast Company. pearson education.com. (2011, March). glossary. Retrieved from http://wps.pearsoned.co.uk/wps/media/objects/2609/2733799/glossary.html Riley, G. (2009, February). What type of market does the I Pod operate in' Retrieved from http://tutor2u.net/blog/index.php/economics/comments/qa-in-what-type-of-market-does-ipod-in Rohrlich, J. (October, 2010). www.minyaville.com. Retrieved from http://www.minyaville.com/dailyfeed/apple-stores-get-more-visitors ----------------------- 2