Market Model Patterns of Change

Market Model Patterns of Change

Introduction

This paper studies Abott, Laboratories. which is a publically traded business to examine pattern of change in the market model, such as oligopoly and monopoly. This paper also include long and short run behaviors of the models, assesses the degree of competitiveness, indicates competitors while grounding the argument on strategies of pricing, as well as offer recommendation for profit maximization.

Discussion

Abbott Laboratories

Abbott Laboratories is an international multinational based in US. The company was founded in 1888 and has it operations in more than 130 countries. Abbott Laboratories headquartered at Illinois, North California and is publically traded company and listed in NYSE.



Abbott Laboratories and General Change Pattern of the Market Model

Abbott Laboratories operates in the US healthcare industry. The industry is characterized by rapid growth and fast paced industry. There are several health providers, and customers have plenty of choices and alternatives, which signify the intensity of the competition faced by Abbott Laboratories. Thus, no company within this industry has power to sell products at premium. In contrast, the industry is going through a rapid change and slowly moving towards oligopoly where few companies will ultimately control dynamics of market.

There are several companies operating with Abbott Laboratories, such as Nestl, Teva Pharmaceutical Industries Ltd., Roche Holding AG, along with several other small firms (Stamatakis, Weiler & Ioannidis, 2013). The intense competition among these big industry giants might pushed small healthcare service companies as they are not capable to invest in the rapidly changing technology and infrastructure; thus, there is a huge possibility of merger within the industry.

Long and Short Run Behaviors

Literature have highlighted several theories that explain oligopoly, for the sake of this paper, the Kinked-Demand theory of Oligopoly is employed According to this theory, if only Abbott Laboratories increase the price, this increase in price can be ignored by other firms; however, other competitors in the market will match any decrease in price. As a result, the demand curve for Abbott Laboratories that is bended at the current price equilibrium. Under this assumption, Abbott Laboratories if tries to increase price will left alone by other competing firms and result in market share lose and encounter big demand losses as its rival firms keep the prices low. On the contrary, if Abbott Laboratories reduce prices, there will be no increase in market share but a slight increase in demand while other firms strive to reduce price. Consequently, Abbott Laboratories will have a bended demand curve. Despite change in cost, there will be no change in prices and output until marginal cost remains in upright portion of marginal revenue (Prochaska, 2013).

In the short-term, Abbott Laboratories may receive profits, if demand for the medicine is highly related to costs. The company may need to stop operations or suffer loss if unable to cover variable costs or if able to cover just all cost, respectively.

Thus, this model estimates that prices must be quite inflexible in the long-term, under ...