The Economic Analysis of Markets

Abstract

This paper will include the discussion regarding the economics market structures. It will begin with the introduction of different market structures including monopoly, oligopoly, perfect competition and monopolistic competition. These market structures will be followed by the various pricing strategies that are suitable for each type of market structure. At the end, the paper will include a case study of Lockhead Martin in order to enable readers to have better knowledge about the economic analysis of markets.

Abstract2

Introduction4

Discussion4

Perfect competition5

Monopolistic Competition6

Oligopoly6

Monopoly6

Price Strategies8

Case Study9

Conclusion11

References12

The Economic Analysis of Markets

Introduction

The economical market structure can be divided into four primary structures including the perfect competition, oligopoly, monopolistic competition and monopoly. In economics, it is assumed that marketplace consist of a number of different buying and selling individuals and organizations. Due to the existence of various buyers and sellers, competition in the market arises that forces organizations to modify prices in responding to the market demand and market supply. Apart from this, almost all of the products and services have some kind of substitutes that can enable consumers to fulfill the need of these products and services to some extent. If the price of a product rises, the consumers around the globe have the option of switching to the substitute products. The market that consists of many buyers and sellers give equal power to influencing price to both buyers and sellers. In such scenario, there is no chance of any party to be unfairly treated by other.

Discussion

The importance of market structure cannot be isolated by any organization around the world that is running in today's globalized and competitive world. It is because every organization needs to understand the importance of market structure in which they are operating in (Armstrong, 2007). The impact of any specific market structure is significant on the decision making process of the organizations. It enables the organizations to be well aware of the competition that is exists in the market. It also assists organizations in setting the best suitable price of products and services (Kyriakopoulos, 2000). There are number of industries that exist around the globe that have absolutely no substitute or competition. In such scenario of market consisting of small number of suppliers of products and services, the producer (s) has the ultimate power of controlling the prices.

Perfect competition

It is one of the most common structures of market in economics in which the items being produced and sold are identical in nature. There are large number of products and services available in the market that are engaged in offer similar products and services. All the firms in the industry are known to be price taker. If any organization in the industry increases its prices, it will face dramatic decrease in total sales. It is because customers have many other options available to easily switch to the products and services of the competitors. Thus, the price in such market structure is price elastic. Any organization running in perfect market competition will only have a minor portion of ...