Consultant to the Local Mayor
David D. Moore
ECO 204: Principles of Microeconomics BQC1334A
23 Sept 2013
Consultant to the Local Mayor
This paper is going to address the various market structures that will help the local mayor understand the structures of the many businesses in the city. In order to do this the following market structures will be addressed: perfect competition, monopolistic competition, oligopoly and monopoly. For each of these topic structures two market characteristics will be discussed. A real-life market structure within the local city will be identified with relation to the characteristics of that market. Next the paper will ...view middle of the document...
This would mean that there is market equilibrium. With average revenue greater than average cost the demand curve will remain elastic. Amacher (2011), states, “Monopolistic Competition describes an industry composed of a large number of sellers. Each of these sellers offers a differentiated product, which is a good or service that has real or imagined characteristics that are different from those of other goods or services”. This is to say that the same product is being offered although it is shown to be better or superior to the rival products. A great example of this would be gas stations. Although Texaco and Chevron are shown as having superior fuel due to the cleaning additives possessed within the fuel, Shell, Aragon, and even Costco offer fuels with the same amount of detergency at a lower price. The next market structure is an oligopoly. In an oligopoly there are only a few different firms that control 90% or so of the market. Airline industries are a great example of this. Some other examples of this would be cell phone companies as well as companies that may form a cartel like the oil industry. A monopoly consists of a firm that has the stronghold on a market. In this market there is no suitable substitute to the product being provided. Although one might think that a product could be sold at any rate desirable, this is not the case. Monopolies will actually find the rate that sells the most products at a desirable rate. This allows the monopoly to keep possible competitors out of the circle while making profit over the long-run. One example of this would be utility companies. Even though there are no substitutes for consumers, the government steps in and provides price regulation to ensure that rates remain affordable. It is in the best interest of the monopoly to remain reasonable, thus safe guarding the business. In Germany the company Deutsche Telekom became extremely greedy with their phone service. The government stepped in and divided the company into six subsidiary companies originally backed by the government. Deutsche Telekom lost their foot hold on the monopoly power that they possessed.
A real-life example of a local market structure in the city is the bakeries. Although there are three bakeries to choose from, they all hold similar prices and the products are substitutable across one another. This is an example of a monopolistic competition. The market can easily be moved in and out of and each firm is competing to sell the same product as if it is better or incomparable to the other.
High end barriers refer to the existence of high start-up costs or other obstacles that prevent new competitors from easily entering an industry or area of business. Barriers to entry benefit existing companies already operating in an industry because they protect an established company's revenues and profits from being whittled away by new competitors. (Investopedia, 2013) An example of this barrier would be a Credit Union. In order to...