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The theory of Market Structure

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Introduction

The theory of Market Structure takes a very important place in the theory of economy. The structure of a market provides us with different information such as general profit and utility maximising notions and conditions. Economics is an explanation of the ways of economic agencies' interactions through commodities, services, and mediums of exchange like money, production processes and other in order to make their standard of living higher. It is impossible for the economic agency to do this without knowing something about the market, on which it operates. It's also impossible to predict producers' or consumers' behaviour without knowing general profit and utility maximising conditions. According to the theory market is divided into four most distinctive types. The pure competition and pure monopoly are the polar ones. Between them there are two: monopolistic competition (it is closer to perfect or pure competition) and oligopoly (closer to monopoly, but has more than one but not many large operating firms, lower monopolistic power and other distinctive features). The most popular and wide spread markets are the markets with both the price making of a monopoly with a large number of suppliers and free- entry conditions of pure competition. ...read more.

Middle

5. Product differentiation allows producers to have some control over the prices of their products. 2. Sellers do not behave strategically. As there is a large (like in perfect competition) number of small firms, we assume, that each of them does not have a noticeable effect on the price decision of other producers, while changing the price for its output. Thus, firms do not take into consideration the expectation of a reaction of their competitors to their price and output decision. Buyers & sellers are independently acting. 3. All participants have perfect information. 4. No entry barriers on the market. Neither technological nor legal barriers to entry exist. This feature is similar to the perfect competition market. There are 2 types of monopolistic competition: Oligopoly - a few large sellers dominate and have the ability to affect prices in the industry. Because of the fact that in an oligopoly there are very few firms, when ever one firm does something, the others follow suit. Since all the firms have considerable power and influence, firms tend to act together. There are times when the interdependent behavior of the firms results in a formal agreement to set prices; this is termed a "collusion". ...read more.

Conclusion

Inventions are covered for 17 years and designs can be patented for shorter periods. Art and literary works are protected in much the same way through a copyright. Microsoft's control of the Windows operating system is such an example. * Government Monopoly - a business the government owns and operates. Government monopolies are found at all levels and in most cases, involve products people need that private industry may not adequately provide like the post office. I can't exactly determine what type of pure monopoly our trunk-line service refers to. We can say, that it is technological, but I still consider it to be more government, because other firms really have no right to provide our people with the service at lower prices. But I don't think, that it will last long. Of course, there cannot be pure competition among them like among Internet providers, but still we may expect oligopoly and like among providers of local calls services we may expect very soon pure competition. Sources 1. Campbell R. McConnell, Stanley L Brue Economics, New York, 1987. 2. Porohovskyi ?.?. Microeconomics M:- 1984. 3. Apolova V.I. Market structure M-1996. 4. Stephan Schueller Economics New York: Vintage, 1991. 5. White, Mark. "Monopolistic competition." Newsweek 15 May 1995: 22. 6. Whinsler, Gohn. "Raise of economy." Newsweek 15 July 1996: 14 7. Krasnov, Mishail. "Crisis" Moskow News 15 January 1995: 7 2 ...read more.

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