Major Market Economies Constitute Different Market Characteristics

Question: Discuss about the Major Market Economies Constitute Different Market Characteristics? Answer: Introduction The study demonstrates different market structures of the Albany, capital of New York. In this particular paper, the researcher has been appointed as a consultant by the local mayor of Albany. The researcher would help the mayor to understand the business structures of the city. Further, the researcher would discuss about the role of the government in this particular market. Different Market Structures As mentioned by Dunne et al. (2013), the entire business of an economy runs under four main types of market that include Pure Competition Market, Monopolistic Competition Market, Oligopoly Market, Pure Monopoly Market. In pure competition market, broad range of sellers is involved for selling same products, and thus they confront high competition. Along with this, large number of buyers is also involved. In this particular market, the product price is set by the interaction of the market demand and marker supply. The monopolistic competition market defines a imperfect competitive market where many of sellers as well as buyers are engaged. In this market, the products sold by the sellers can be differentiated from one another. The goods and services produced by the producers are not perfect substitute (Frank, 2013). Mohammadi et al. (2016) added that the firms in oligopoly market confront relatively less competition as small number of sellers are engaged, along with large number of buyers. The oligopolists have the power over the product price, thus the consumers are charged higher price. On the other way, the pure monopoly market defines the market where single seller and many buyers are involved. The researcher has discussed these economic markets as these four markets influence the economy of Albany most. Further, the researcher is going to separate them by their major characteristics. The market characteristics of Pure Competitive Market: In this certain market, the produced goods and services are identical. Thus, the sellers do not have the option to offer different or better products to the consumers. All the sellers have equal power over the market as they are offering same products against same price. There are Low barriers for the new entrants in this market. The new firm can easily enter into as well as exist from the market. The price of the products is set as per the consumers willingness to pay for particular product. Though, single buyer cannot influence the market price (Makowski, 2014). The market characteristics of Monopolistic Competition Market: In monopolistic competition market, the produced goods and services are similar, but not identical. More specifically, the firms sell almost similar products which can be slightly differentiated from one another. Another major characteristic of this market is the extensive knowledge of product price and technology. The consumers have the information about alternative prices as well as the product differences. On contrast, the sellers have the information about the price the other firms charge to the consumers. Along with that, they use almost similar production techniques (Feenstra, 2016). The market characteristics of Oligopoly Market: The oligopolists produce either identical products or differentiate products. In the oligopoly market, some sellers are there who sell identical products, likewise perfect competitive market. On the other way, some sellers sell products that are slightly differentiated from one another, like monopolistic competition. The identical products in the oligopoly market are the intermediate goods such as petroleum, aluminum etc sold to many of the industries. On contrast, the differentiate products are the final goods sold to the consumers for personal consumption. Further, the small firms are dominated by the small number of large firms. The firms have more power of market control in comparison to the monopolistic competitive firms (Sung et al., 2016). The market characteristics of Pure Monopoly Market: In the pure monopoly market, there is a single seller who is the sole source of the produced goods and services. No close substitutes are available in the market. Some barriers are there that prevent its competitors to inter in the market. The barriers include legal barriers, control of resources, and economies of scale etc. Among this, the legal barriers including licenses issued by government, patents, copyrights etc. are the most powerful constraint (Baldwin Scott, 2013). Real life example of a market structure in local city After illustrating all the market structure along with their major characteristics, the researcher brings out an example that would help the mayor to understand the market structure. The fish market in Albany can be considered under perfect competitive market. Large number of seller is engaged in the market to sell the identical product. At the same time, large number of consumers is there with perfect information about product price and product quality offered by the market. Thus, no seller can charge higher or lower price than others. They do not have the power of attracting consumers by the product price or product quality. Further, the existing fish sellers do not have the power to prevent other fish sellers to entering or quitting the market. New sellers who want to sell the same product (fish) can freely enter in the market. Presence of high entry barriers that leads long-run profitability It has been discussed before that in the perfect competitive market, no such entry barriers are there. No economic profit is made by any of the existing firms, as the price continuously decreases till the level of consumers willingness to pay. If one firm charges higher price than any of other sellers, the consumers will purchase from the seller who offers products at lower price. If there can be a stage where most of the firms exit from the market and few numbers of sellers remain in the market. They can charge higher price for making profit. In this situation, more firm are attracted and entry in the market. As a result, supply increases, and thus price drops, and will result zero economic profit (Koschker Mst, 2015). The highest barriers are present in the monopoly market. Thus, the monopolist can make the most profit in the long run compared to other market sellers. The demand curve of the monopolist is the market demand curve. No firms are there to compete with. If the monopolist sell products at lower price that could have been sold at a higher price, the marginal revenue curve will lie below the demand curve. In such case, for the elastic portion of demand curve, the lower price increases the total revenue. On contrast, in the inelastic portion, lower price decreases the total revenue. Thus, there is always a possibility of increasing total revenue by raising the price and lowering production. The monopolist will lower the price until marginal revenue equals marginal cost, which denotes the profit maximizing point. Thus, the monopolist will able to make long run profit. Competitive pressure in market with high entry barriers Moving on, the researcher is going to demonstrate the competitive pressure presents in the market along with high entry barriers. Along with the monopoly market, high entry barriers are there in the monopolistic competitive and oligopoly market as well. The firms do not face any competitive pressure until they provide any strong response to the new comers (Claessens Laeven, 2016). The researcher has considered an example to explain it in a better way to the mayor. Suppose, a firm has strong place in the market of Albany; it produces safe and long lasting small batteries and sell them at reasonable price. The firm who wants to enter in the market has to produce such batteries which can be proved better from every way. The battery should have to be longer lasting and the price should have to equal or lower than the available battery price. Thus, the new firms confront high competitive pressure along with the high entry barriers. Price elasticity of demand and its impact on market As per the statement of Da-Graa Masson (2016), Price elasticity of demand measures the relationship between the change in price as well as the change in quantity demanded for any specific goods or services. It explains the market situation of price sensitivity. The researcher explains to the mayor about the impact of the price sensitivity on each of the above mentioned market. Price changes in the perfect competitive market do not affect the market too much. More specifically, the small change in price has no impact over the demand of the goods and services that are available in the perfect competitive market. A drastic change in price would reduce the quantity demanded for the products. On the other way, if the available materials become restricted or expensive, it will increase the price, and hence affect the demand of the market (Kirzner, 2015). In case of the monopolistic competitive market, a large number of firms are there with low degree of monopoly power. Though, the price hike in this market will retain few of the buyers. On the other way, price fall will create more demand in the quantity of any particular product against its price (Campbell, Goldfarb Tucker, 2015). Few competitors are there in the oligopoly market. A drastic change in product price will drive the firms into either monopolistic competitive market or monopoly market (Ji, Chang Huang, 2016). In case of monopoly market, the seller is the sole source of the produced goods and services. Therefore, price change in the monopoly market results decrease or increase in the total revenue of the single firm. Too much decrease in the revenue will result closure of the firm. On other way, increase in price will allow the firm to generate more revenue as well as profit in the long run (Indounas, 2016). Role of government in each market structure The government of Albany plays an important role in each of the market and influences their pricing ability for their produced goods and services. The researcher elucidates the major role of the government to make the mayor understand the influence factor of price changes. Through implementing tax, government controls the prices of the products. If government imposes more tax on a product, the price of the product will increase. In case of elastic product, the demand for the product will decrease as the price increases. On the other way, if the product is inelastic, the demand will remain same. For example, the cigarette can be considered as inelastic product, without which the addicted person cannot live. Further, government imposes new regulations that affect the production as well as the sale of the products (Wang et al. 2012). Effect of international trade According to Antrs Yeaple (2013), the international trade put impact on each of the market in a different way. In context of trading, the import of a particular goods make fall in the price of its substitutes or identical products available in this country. The firms of Albany will reduce the product price because these are available at a cheaper rate due to importing those from another nation. The researcher can support the concept of the effect of international trade with an example. For example, the call centers are outsourced in order to reduce the expenditure of the company. At the same time, it hampers the job growth of the country. As a result, the market structure and market economy of the country is affected in terms of international trade. Conclusion After conducting the study, the researcher concludes that the four major market economies constitute different market characteristics. Through providing real life experiences, the researcher helps the mayor to relate the market characteristics with the real world. It further concludes that the monopolist make high amount of profit in the long run, whereas long run profitability is not possible in the competitive market. Some of the new firms are there who confront competitive pressure along with high entry barrier, to enter a market. Moreover, the mayor has come to know that price elasticity of demand affect each of the market in different ways. Lastly, the researcher provides the concept of the affect of government intervention and international trade in the economy. Reference List Antrs, P., Yeaple, S. R. 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