A look at the Variations Between the Different types of Market Structure.

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James Pitcher                09/05/2007

A look at the Variations Between the

Different types of Market Structure.

Introduction

This report will look at the competition policy within the UK and state what it does within the different market structures. With this the report will show two examples of where the competition authorities have had to investigate. Also the report will use the supermarkets as an example and show how they are able to meet their company’s objectives within their market structure.

The different Market structures

In this section the report will look at the different market structures and show examples of the types of companies, which trade within them. Also the report will look at the advantages and disadvantages to each of the market structures.

Perfect competition

This market structure has a vast amount of companies with no barriers to entry new companies can join easily.  Product pricing rarely changes, and is usually low, as no one company has the resources to develop the product or business image. E.g. advertising.

The downside to this type of market is that there is little reason for competition, as the price will not have a significant difference when consumers go to a different company.  Another is that there is no chance of the market being able to innovate as all business in the sector are small and cannot afford a research and development.

Oligopoly Market

An oligopoly market has a small number of firms, which are all able to make supernormal profits.  The advantages are that these companies have the resources to reduce the price of their products, this can sometimes lead to price wars such as in the case of the big supermarkets. Also the supernormal profit can help innovate the market through research and development programs.  As there a fewer firms the more market share there is between them and the more influence they can have on the market.  Another advantage is that these companies do not always compete on price and sometimes try to entice customers into their shops through:

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  • Advertisements – showing their level of service is better than competitors.
  • Celebrity endorsement – Jamie Oliver helps Sainsbury’s through special advertisements and exclusive products with his name on.
  • Loyalty card – Giving something back to the consumer every time they shop at their store.

The downside is that the barrier to entry is very high and any company coming into the market would need a big backer or they would run the risk of being squeezed out.  Another real threat is the risk of two or more companies wanting to form collusions, which would affect the ...

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