MARKET STRUCTURES

Market Structures and Maximizing Profits

Market Structures and Maximizing Profit

Introduction

In economics market, is a place (physical or virtual) where any set of transactions or business arrangements between buyers and sellers are observed. In contrast to a simple sale, the market involves formal and regulated trade, where there is some competition among the participants. The exchange usually happens on a voluntary basis in the form of an equivalent exchange for cash (trafficking) or other goods (barter). In equivalent terms, the market is defined as the meeting point of supply and demand. These definitions can then refer to a physical place, or an intangible concept. Often the term market indicates briefly the economic system more precisely defined market economy. This paper discusses various market structures and their unique characteristics that differentiate these market structures from each other.

Discussion

Competitive Markets:

All markets are not competitive market, because for a market to be competitive there should be several independent buyers and sellers. Competitive markets are a significant number of independent members. A perfectly competitive meets four conditions:

All market participants shall at all times aware of the opportunities offered by the market (perfect knowledge or information on the complete market),

The buyers and sellers are small and independent,

The introduction of new products is simple (no barriers to entry),

There is ease of movement of capital from one sector to another (Mankiw, 2011, Pp. 280).

A competitive market is also composed of many buyers and many sellers, so that no single buyer or seller can exert significant influence on prices. The perfectly competitive market is in fact an ideal model because all the real existing markets do not achieve all the above conditions, there are nevertheless real markets that are very close to the notion of perfectly competitive market such as most agricultural markets (Although this ancient condition is now doubted by some for many reasons, such as the presence of certain corporations of seed production - and thus the market - including through the deployment of only sterile seeds). Many other markets reach a degree of competition such as to make them be thought of as perfectly competitive markets (for example, the copper market). Other markets, set up only by a small number of manufacturers can be treated for simplicity as if they were competitive markets (Corchón, 2001).

Monopolistic Market:

A monopoly is a market where there is only one seller. In standard neoclassical economic theory, fully competitive markets are efficient in the sense that they produce the products that buyers want at the lowest feasible cost. Buyers signal their wants with their purchasing habits, and firms' production costs are pushed down as they compete for market share. Companies will make profits, but profit margins are kept in check by competition. In competitive markets, firms will produce the quantity of goods at the price where marginal cost equals marginal revenue (i.e., at the point where it costs as much to produce the last good as is obtained from selling it) (Cowling & Mueller, 1978). Monopolists, however, can make excess or monopoly ...