• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

The theory of Market Structure

Extracts from this document...

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.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our AS and A Level Markets & Managing the Economy section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related AS and A Level Markets & Managing the Economy essays

  1. "Discuss and evaluate the proposition that perfect competition is a more efficient market structure ...

    Monopolies in order to maximise their profits price discriminate between buyers. This means that they can sell the same product for different prices to different buyers. Monopolies do this to maximise their profits and price discriminate basing on time, place and income.

  2. What are the implications for economic welfare of a market structure changing from perfect ...

    In perfect price discrimination, the price is decreased in order to sell a larger quantity. The monopoly sells only marginal unit at that price and subsequent units is sold for the highest price the consumers are willing to pay. In this way, the demand curve becomes the marginal revenue curve.

  1. What is a Monopoly?

    positive externalities). Exploitation of Economies of Scale Because monopoly producers are often supplying goods and services on a large scale, they may achieve economies of scale - leading to a fall in long run average costs. Lower costs will lead to an increase in profits but gains in productive efficiency might be passed onto consumers through lower prices.

  2. what is economics

    supplied when there is a rise in prices * This is because firms are more likely to be making a greater profit * So when price increases, the quantity supplied also increases * If there is a fall in price, there will be a fall in the quantity supplied as

  1. In this essay, I would like to take a view at the implications for ...

    Because there is only one firm in a monopoly, the firm's demand curve is also the industry demand curve, so the equilibrium can be shown in Figure3. From the figure, we can see that although the monopoly firm can charge any price it like, it is still constrained by the

  2. Is the Government to Blame for Higher Petrol Prices?

    using a product I cannot prove that the Petrol Price is where it should be. However it can be said that the difference between MPC and MSC has definitely been reduced with taxation on fuel. However the other argument associated with Externality Tax is to reduce Consumption of the product and switch it to more environmentally friendly ones.

  1. In this essay, I will analyze and compare the two extremes of market structure ...

    This ensures that no buyer has any economic incentive to pay any firm higher price for the product than is charged by other firms because buyers will compare the prices and find out which firm would charging them less for an identical product.

  2. What Are The Effects Of Tescos Oligopolistic Market Structure, On Both Consumers And Producers?

    The main reason for sustaining prices at a constant level, is so that competitors can match price decreases, but not increases. Independently, a firm will have minimal gain from altering prices. This is illustrated by the use of 'The Kinked Demand Curve.'

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work