Comparing Market Structures

There are four types of market structures which are perfect competition, monopolistic competition, oligopoly and monopoly. Below is a table indicating their differences from each other.

 

Perfect Competition

A perfect competitive market has a large number of small competitors that have no market control. This competition is the ideal. This graph depicts the demand which has a horizontal meaning the price is unrealted to the quanity sold.

Monopolistic Competition
Monopolistic competition is a large number of small firms that compete with product differentiation through advertising. This graph shows the demand for a monopolistic competition. The demand is downward sloping indicating that is elastic. It means that the quantity is affected by the price of the product. An demand for an elastic product means that there are available substitutes.

Oligopoly

Oligopoly is a few large firms that have non-price competition through agreements made between both large firms. These agreements affect the quantities produced and the fixed price of the product. The graph illustrates the demand for an oligopoly market which is a downward slope. The market is inelastic as the change in price has no affect on the quantity demanded.

 Monopoly

A Monopoly market is made up of one firm that has control over the quantity produced and the price of the product. This market is very difficult to enter into. The graph shows a demand graph downwarding sloping for monopoly. The demand is

inelastic as the price has no affect on the quantity demanded.  The monopoly firms are able to make economic profits also in long-run.

Oligopoly and Game Theory

Oligopoly is a few large firms that control the market. Entry into this market is very difficult. Oligopoly is at the complete opposite end of the spectrum from perfect competition. Monopolistic competition is located in between oligopoly and perfect competition. Entry into the monopolistic market has free entry that is similar to perfect competition. Oligopoly is very difficult to enter as it has numerous firms that dominate the industry. In oligopoly there is no competition as there is no product differentiation between the other firms. They do have control over their prices. In monopolistic competition there is product differentiation and price competition. A monopolistic competitor has some control over their prices. In perfect competition the prices of products are lower as there is no competition between the firms.

Game theory is the method that John Neumann and Oskar Morgenstern defined in the 1940's as the firms accounting for the decisions they make or what other firms decisions will have on each other. It identifies the different solutions or ideas in a payoff matrix. The payoff matrix is highly effective as it distinguishes the different decisions that firms have. In the market of oligopoly it is controlled by self interest and are untouched by Governments. It allows the ability for individuals to get what they want. Collusion is an agreement between the firms to identify they quantities each are able to produce or fixed prices. The cartel is an agreement of firms acting as one rather than two.  

Monopolistic competition is the best choice for the market type as is made up of various firms and have differentiated products. There is constant price competition that is favourable to the consumer. The consumer will be the one benefiting from this competition as they will get the lowest price for the products desired. I feel like I am in control of my purchasing choices. By the firms advertising to inform and draw consumers to purchase their products we have the information needed to make a decision of purchasing.

Defining Monopolistic Competition

Monopolistic Competition is small firms that control the prices of the product and have similar products.The customers preceptions of products result from product differentiation. Producers consistantly identify their product as different/ better than any other products on the market. This is important to producers are it will allow them to create an image for their products.

Competing as Starbucks

Perfect Competition is stated that it is the idea that no producer or consumer can determine the price of the product. Starbucks speciality coffee products are the highest prices in the coffee industry. Starbucks has sacrificed the customers preferences over increasing efficiency. The demand for Starbucks has decreased due to they have introduced automatic espresso machines, no in-store coffee grinders and bagged roasted coffee. These factors increase efficiency and decrease the customer service and the coffee aroma in the stores. Starbucks has decided to close numerous stores due to decreasing sales. The store closures will have an impact in their short-run and long-run costs. In the short-run they will have less stores which will decrease the amount of stores available to the customers. In the long-run Starbucks will be paying the pre-tax charges, severance costs and the costs of future lease obligations. Increasing the efficiency in their stores has now forced them to re-evaluate their business practises.

Starbucks coffee prices are expensive for the size of their products. Starbucks offers high-end speciality coffee products. I like Starbucks lattes and when I decide to purchase one, I think of opportunity cost. The opportunity cost is the choice of an alternative product to a product. Starbucks competitor is Tim Hortons as they have started to offer speciality lattes. I can purchase two Tim Hortons coffees for the price of one Starbucks latte.

Below are links to the articles indicating the store closures and examples of increased efficiencies in the stores.

http://starbucksgossip.typepad.com/_/2007/02/starbucks_chair_2.html
http://www.cbc.ca/news/business/story/2008/07/01/starbucks-closures.html
http://seattletimes.nwsource.com/html/businesstechnology/2008028854_starbucks02.html