Market Model Patterns of Change

Market Model Patterns of Change

Introduction

Economists have grouped industries into 4 different market models: pure monopoly, pure competition, oligopoly, and monopolistic competition. These 4 market structures are different with respect to several elements, including the number of companies in the industry, whether those companies try to differentiate their products or services from their competitors or they produce a standardized product, and how difficult or how easy it is for companies to enter into the industry (Brue & McConnell, 2006). Thus, market models in terms of economic concepts differ greatly. This paper is focused on a specific business i.e. Standard Oil (US) in an industry that experienced a pattern of change in a particular market model, and illustrates significant aspects of changing market models.

The Business & General Pattern of Change of the Particular Market Model

Overview of the Industry & Market Model

Historically, some of the industries in the United States of America were dominated by monopoly (having one major supplier), which was mainly because there were barriers to entry in the market at that time like high cost of setting up business investment and government regulations (Wells, 2004). But the government of US worked towards demolishing monopoly and encouraging competition in order to protect consumer markets.

Sherman's Hammer Sherman Antitrust Act was passed in the year 1890, which was applied on companies in order to ban monopolies or near monopolies (business combinations) in retrain of trade (Conlin, 2009). However, in early 1990s, the market model of oil industry of the United States was 'monopoly'. Monopoly is a market structure in which one seller or producer dominates the market, high price was charged due to lack of competition, and high barriers to enter the market because of patents; technology; government regulations; distribution overheads, or capital intensive nature of the industry.

Overview of Standard Oil (US) & its Monopoly

The oil industry of the United States is dated back to the early 19th Century, and oil was first discovered in 1959 in Pennsylvania. During the first discoveries, Standard Oil was among the first firms that established as oil businesses. The company was formed in 1870, and became the only dominating business that produced, refined, transported, and market oil. Standard Oil remained the largest oil refiner in the US for certain years until its monopolistic dominance was broken up by the Supreme Court in the year 1911 (Gibson, 1986).

Change of Market Model from Monopoly to Perfect Competition

With the increasing outcry of public, the Supreme Court of US ruled that the business should be dissolved under the Sherman Antitrust Act. So, the business split into 34 firms, among them major one was Jersey Standard that eventually became Exxon and Socony which then became Mobil. Over the decades, the US oil industry has been characterized by new entrants, foreign as well as local, acquisitions, mergers, break-ups and split-offs among firms.

Due to such changes over the period of time, the oil industry of US now have several oil firms (foreign as well as local), ...