Differentiating Between Market Structures

Markets are different, without these different markets there would not be any structure. Being able to understand different markets and its language, like demand, supply, average variable cost and marginal costs we can better prepare for economic and financial future. The market structure and the interaction that occurs can be defined by the number of businesses, and barriers new firms have when entering a particular market. Perfect competition, monopoly, monopolistic and oligopoly are four forms of market structures recognized by economists.

Compare and Contrast

Private goods are excludable, like food, clothing, toys, furniture, and cars, which are types of goods that can be rival and non-rival. For example, rival goods are types of goods that consumer prevents the usage of the goods at the same time, durable goods and the usage can be shared with others, such as lather. However, in contrast the rival goods can be unendurable such as food, once eaten, cannot be reused. In contrast, non-rival goods can be consumed by the consumer and will not prevent simultaneous consumption by others. These kinds of products are broadcast TV as when in use in one place does not prevent it from usage in other places.

Natural monopoly represents the single source of a product and that no other industry can expand the supply such as water, electricity, and natural gas. The cost of possessing a firm such as water and power is so high that it is not profitable to build another firm to compete. Typically natural monopolies are utilities, which are regulated by the government to prevent them from exploiting with high prices. Natural monopoly should not be compared to Monopoly, as monopolies are normally short-lived because the technological advances developing competition for an industry (n.a. June 6, 2005, 2/5).

“Economists define a public good as being non rival and non excludable.” (econport.org, 2006) This means that the good is readily available and that by one person consuming or using it, it will not keep that good from being used or consumed by another. “A private good is rival and excludable” (Econport.org, 2006). This is the opposite of a public good. This good is in limited supply. Only a certain number of people are able to have it.

A natural monopoly is a single company that has a large advantage over all the other companies already in or trying to be a part of the same industry. The company usually has an advantage due to limitations on where the product can be acquired. An example of that would be a utility company. In that industry there is generally one large company that gets almost all, if not all, the business. Due to this, the company is dominate and makes more money than all other companies make in the business. In contrast, common resources are available to everyone, even

if someone claims part of the product; there is still plenty to go around. An example of that is land. Even if someone buys the land you want there is still plenty for everyone else to buy. One person buying some of the common resource does not stop or take away from others.

Market Equilibrium

Market equilibrium exists when there is a supply and demand. Supply of labor focuses on wages, populations and individuals who could be searching for a job. As for demand of labor is affected by the cost and deals with companies whom hirer workers constantly. When dealing with supply and demand one may notice that each continues to go up and down depending on the situations. The market equilibrium occurs when quantity supplied is the same as quantity demanded (Pearson Education, INC. 1995-2010). Market equilibrium finds the intersection between the two goods, which is the supply and demand. Equilibrium market has an equilibrium price that brings markets together to compete. The price of the equilibrium market does not change, and it is stable. When supply and demand is above the equilibrium price, this means that “producers are willing to produce more of the product and consumers are willing to buy less the equilibrium price” (Pearson Education, INC. (1995-2010). “Quantity supplied exceeds quantity demanded at current prices, which is called excess supply or surplus” (Pearson Education, INC. (1995-2010) when market prices are lower than the equilibrium.

Chosen Organization

As we further analyze the market structures table, we discover the advertising adversaries of Crest and Colgate toothpaste. There are many other brands of toothpaste in the world but in our current marketing area these two come out as the most dominant. They compete with each other and the rest of the smaller companies for their piece of the market power pie of oral hygiene. Other than word of mouth, no pun intended, Proctor & Gamble and Colgate-Palmolive use aggressive advertising campaigns to convince the average consumer that their brand is superior to and different from the competition and that the consumer should purchase or continue to purchase their brand. Though their market structure is competitive, each tries to create a monopoly in which their brand dominates. If anyone has ever been in the toothpaste aisle of any supermarket, it is very clear which, brands are dominant.

Because neither company shows any sign of conceding, this marketing structure seems to be very effective with regard to toothpaste. Within this structure, as long as there is a profit, there will be room for more firms. The only barriers to entry would be the ability to keep up with the advertising campaigns of the major players. Both companies, Proctor & Gamble and Colgate-Palmolive, have many other products that they produce and sell but do not necessarily advertise as aggressively as their toothpaste lines.

Factors that affect Labor Supply and Demand

The factors that affect the labor demand are inflation and unemployment. During these periods, consumers are very cautious with their dollar. Sales businesses drop because of the prices. If consumers do not spend money at these stores, then that leads to layoffs, so the labor demand drops. During a recession, many businesses have to decrease their labor demand because they do not have the capital to offer jobs, unless employees are willing to take a pay cut. Labor supply and demand works hand in hand. If the employee does not act like a consumer, the store would not have the monetary resources to keep a full staff of employees.

Depending on the market structure possessed by each individual organization, factors that will affect labor supply and demand will vary. In order for one to grasp an understanding of common factors that may affect each type of market structure, one must do a comparison and analysis of each. As a group and through research we have determined that the most evident factor that affects labor supply and demand in any market is the demand of the consumer. Maybe this fact is why so many company’s focus on C.S.I. or Customer Satisfaction Index.

When the market structure is oligopoly, there are few firms in the market; organizations in oligopoly maximize their profits based on pricing and output decision that are strategic. The firm attempts to guess the action that will be taken by competitors and then makes its decision. The organization has to set the same price as that of its competitors. If the organization attempts to reduce prices, the move will be followed by other competitors.
When the organization is operating under monopolistic competition, there are several buyers and sellers and there are few barriers to entry. The method used by an organization in such a market structure is to differentiate its products. There are several strategies for differentiation. There are continual innovations of the products, there is a large investment done in advertising to differentiate the product and profit is maximized at the point in which marginal revenue equals marginal cost. Those organizations that thrive in this market structure continuously differentiate their products so that they manage to earn economic profit. The market structure and the interaction that occurs can be defined by the number of businesses, and barriers new firms have when entering a particular market.