Analysis of Market Structures
An Analysis of Market Structures and Their Related Pricing Strategies
Christa Jones
American Public University Systems
Abstract
Market structures influence a firm’s behavior and profit opportunity and are therefore critical to understanding how a market functions. The conditions that distinguish each market structure define the level of competition observed within the market which in turn determines the profit level that can be made. Because pricing strategies are intended to maximize a firm’s profit, understanding market competition is necessary when deciding an appropriate pricing strategy approach. The third section of this paper gives the pricing strategy for a real-world firm for each market structure.
An Analysis of Market Structures and Their Related Pricing Strategies An average or typical market does not exist. However, models of market structures give a general representation of a type of real market. There are extremes seen in market structure models that are not likely to happen in the real world, but they allow us to compare and contrast real world and model information. The information gathered can be used as a benchmark. Firms may function under four primary market structures; perfect competition, monopolistic competition, oligopoly, and monopoly. These market structures affect a market’s outcomes based on its influence over a firm’s behavior and profit opportunity.
The first section of this paper will provide a detailed analysis of the four market structures which can be distinguished based on various conditions. These conditions or characteristics may include the number of firms within the market, the concentration or market power of firms as measured by their market shares, the purchasing behavior of buyers, the product type including differentiation or degree of homogeneity, the substitutability of the product, the elasticity of demand, the entry and exit barriers, the control over market price or output, and the level of
Christa Jones
American Public University Systems
Abstract
Market structures influence a firm’s behavior and profit opportunity and are therefore critical to understanding how a market functions. The conditions that distinguish each market structure define the level of competition observed within the market which in turn determines the profit level that can be made. Because pricing strategies are intended to maximize a firm’s profit, understanding market competition is necessary when deciding an appropriate pricing strategy approach. The third section of this paper gives the pricing strategy for a real-world firm for each market structure.
An Analysis of Market Structures and Their Related Pricing Strategies An average or typical market does not exist. However, models of market structures give a general representation of a type of real market. There are extremes seen in market structure models that are not likely to happen in the real world, but they allow us to compare and contrast real world and model information. The information gathered can be used as a benchmark. Firms may function under four primary market structures; perfect competition, monopolistic competition, oligopoly, and monopoly. These market structures affect a market’s outcomes based on its influence over a firm’s behavior and profit opportunity.
The first section of this paper will provide a detailed analysis of the four market structures which can be distinguished based on various conditions. These conditions or characteristics may include the number of firms within the market, the concentration or market power of firms as measured by their market shares, the purchasing behavior of buyers, the product type including differentiation or degree of homogeneity, the substitutability of the product, the elasticity of demand, the entry and exit barriers, the control over market price or output, and the level of
References: Samuelson, W. & Marks, S. G. (2012). Managerial economics (7th ed.). Hoboken, New Jersey: John Wiley & Sons, Inc. Satapathy, U