Four Market Structures
Perfect Competition – In this first market structure, identical products are being sold according to their market value (financetrain.com). There are low entry barriers to this market in which the only factor that determines the sale is the price. Given that there is no producer that can affect prices, there is a horizontal demand curve for such market. One example of this market structure is an agricultural crop that is only produced in certain region.
Monopolistic Competition – This market structure is similar with Perfect Competition as it also has low entry barriers for numerous firms. However, products are differentiated and firms have moderate influence over the market value of their products. In this case, customers will have more choices as opposed to Perfect Competition (financetrain.com).
Oligopoly – Unlike Perfect and Monopolistic Competition, this market structure has few firms that keep monitor each other’s strategy. However, its consumers also have many products to choose from and in some cases, there is an identical product as well. On the other hand, it is more difficult to enter into this industry under this market structure (financetrain.com). An example of this structure would be a car manufacturing industry. The firm’s influence over their product’s market value is a little more substantial than moderate.
Monopoly – This fourth market structure is the unique among the four as there is just one firm that is involved in the business. Its product is unique in which no other firms have it. In monopoly structure, it is quite impossible to enter into the industry where it belongs. Other players and firms are not allowed to enter (Sen, 2011). The firm has a substantial control over their product’s market value. They can control their pricing as they do not have any competitor that their consumers can turn into.
Zero Economic Profit in Monopolistic Market
The Monopolistic Competition can be considered an imperfect competition because there are many firms that compete with each other in terms of selling different types of products. These products are similar in nature, but become different as they have different brands and are substitutes of another (princeton.edu).
In a short-run, monopolistic competition acts like a monopoly such as using the market power to in generating their income. However, in the long-run, more competitors come on the market, which decreases the product differentiation because of the competition.
As it continues, this market becomes more like a Perfect Competition in which economic profit is not gained by firms. Basically the long run process of monopolistically market is comparable to Perfect competition wherein a firm’s profit in the long run process is the breakeven of their short run profit (princeton.edu).
Characteristics of a Public Good
The Public Good has two characteristics. They are the non-exclusion and the other one is the non-rivalry. Non-exclusion means that nobody is excluded from consuming something whether or not people pay for it. In non-exclusion principle, once the product or good has been produced, everybody can access it or consume it. It does not matter if they pay for it or not. Even non-buyers can take advantage of that good and they cannot be excluded. In layman’s term, free riders are present in the non-exclusion principle (Stonebraker, 2013). An example would be a person who doesn’t pay his taxes, who can still be benefited from the government’s road projects, police protection and even national defense.
The second characteristic is the non-rivalry. Taken from its term, there is no rivalry when it comes to good consumption between two or more consumers. Stonebraker (2013) claims that it is a non-rivalry as a person’s product consumption would not affect the others’. As an example, if a person takes a bath and consumed ten gallons of water, it will not have an effect if his neighbor will use just a gallon to water his plants. In this case, water is a good that everybody can consume without affecting the others’ consumption, making the water as public good.
Product Differentiation’s Effect on its Demand
Product differentiation is a process that shows the differences between products. It portrays the product’s uniqueness in contrast with its competitors (Piana, 2003). As a result, it provides advantages to the seller in terms of competition once consumers look at this product as superior or unique. In this case, a product that is considered better would have a higher price because of its production costs. The product’s demand would go up as consumers may rely on its price to infer its quality. The better the product would be, the higher its chance to increase its demand
Different Economic Intervention of the Government
The government normally intervenes in markets, even the ones that are highly competitive. This act of intervening can be in different forms. First, is the price fixing. This can be imposing a price floor or the lowest price that a product could have. It can also be a price ceiling in which the government applies maximum fixed price of the product. Another one is when the government imposes tax for the production or sale of different products and services.
The government is also subsidizing the sale or production of some goods and services (pearsoned.co.uk).
The government is also directly produces products and/or services such as health and defense. One of the most common interventions is when the government regulates the firms’ activities such as passing laws to ensure that the public interest is protected (pearsoned.co.uk).
Monopolistic competition. (n.d.). Retrieved from http://www.princeton.edu/~achaney/tmve/wiki100k/docs/Monopolistic_competition.html
Pearson Education (n.d.). Chapter 3: Government Intervention in the Market. Retrieved February 12, 2014, from http://wps.pearsoned.co.uk/ema_uk_he_sloman_economics_6/41/10679/2733857.cw/
Piana, V. (2003). Product differentiation - a key concept in Economics and Management. Retrieved February 12, 2014, from http://www.economicswebinstitute.org/glossary/product.htm
Sen, S. (2011, July 10). Market Structure: Monopoly, Oligopoly, Monopolistic and Perfect Competition. Retrieved from http://fintowin.com/2011/07/market-structure-monopoly-oligopoly-monopolistic-and-perfect-competition/
Stonebraker, R. J. (n.d.). The Joy of Economics: Public Goods. Retrieved February 12, 2014, from http://faculty.winthrop.edu/stonebrakerr/book/public_goods.htm
Types of Market Structures - Finance Train. (2012, May 15). Retrieved February 12, 2014, from http://financetrain.com/types-of-market-structures/