Join. All: How do the four types of market structures differ
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Industries can be classified under different market structures and this classification strongly dictates decisions made by managers within the market. For example, in an industry classified under perfect competition, or in a perfectly competitive market, many competitors offer the same product and entry into the industry is easy.
In this market, the pressure to maintain the same prices as the competitors is high, which characterizes this market. On the other extreme, some industries are classified as monopolies and some fall under monopolistic competition. In a monopoly, there is only one provider of a product or a service, which has an inelastic demand. In this case, there is little incentive for the monopoly to be efficient or price competitive. In a monopolistically competitive market, there are many firms selling a product or service that is only slightly differentiated from madket another, and in the long term, these firms start showing characteristics of a perfectly competitive market.
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Find an article about an industry in the United States, such as the pharmaceutical industry. After reading the article, respond to the following:.
According to Quickonomics, monopolistic competition builds on the following assumptions: 1 all firms maximize profits 2 there is free entry and syructures to the market, 3 firms sell differentiated products 4 consumers may prefer one product over the other. Now, those assumptions are a bit closer to reality than the ones we looked at in perfect competition.
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However, this market structure will no longer result in a socially optimal level of output, because the firms have more power and can influence market prices to a certain degree. Many small businesses operate under conditions of monopolistic competition, including independently owned and operated high-street stores and restaurants. In the case of restaurants, each one offers something different and possesses an element of uniqueness, but all are essentially competing for the same customers Economicsonline.
The company that acquires a very high market share exposes itself to a number of risks that its smaller competitors do not encounter.
Competitors, consumers, and governmental authorities are more likely to take certain actions against high-share companies than against small-share ones. Smaller competitors, for example, can direct certain types of attack against larger organizations, attacks that would not work as well against companies of equal or smaller size.]
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