Market Structures: Perfect Competition, Monopoly, and Monopolistic Competition

1- project’s title 2- part 1: introduction: Include:- (a) your research questions (b) research methods 3- part 2: literature review (That is, do a library search and point out what had been written in the area of your class project). covering from 2008 to 2015. 4- part 3: Data collection (data and graph) 5- part 4: Data analysis 6- part 5: conclusion & personal comments on the project.

Introduction

A good understanding of the market structures is important in formulating business and market strategies and in having a good perspective of the market dynamics. Market structures entail the interconnected market characteristics, which include the relative strength and number of consumers and sellers, as well as the collusion level among them (Kamien & Schwartz, 2012). It also encompasses the forms and degree of competition, ease of market entry and exit, and level of product differentiation. The concept of market structures matters greatly for firms and consumers. It determines whether customers’ needs are met or not, and at the same time determine whether businesses achieve their main objective of making profits. Consumer behaviors and formulation of decisions and strategies are largely influenced by the important characteristics of the market structures that they exist in. Characteristics such as competitive advertising, pricing decisions, product policy, and new product development are all influenced by specific or combined market structure (Shubik & Levitan, 2010).

This research paper will examine market structure analysis that include the comparison of economic and market methods. The specific market structures of focus in this paper are: perfect competition, monopoly, and monopolistic competition. The research questions include: what are the major market structures? What are the key characteristics of the main market structures? How do specific market structures impact on the market and its players? Descriptive research method will be used in this paper; it is appropriate because the paper seeks to describe the market structures and their characteristics (Rugg & Petre, 2007).

Literature Review

According to Kamien & Schwartz (2012), there is no clear definition of market structures; however, the characteristics that define each structure are similar. Perfect competition is one of the main market structures. It describes the market that numerous firms, homogenous product, freedom of entry and normal profit (Shubik & Levitan, 2010). This kind of market has no barriers to entry, its demand curve is perfectly elastic, and the number of consumers and producers is unlimited. In a market where perfect competition exists, prices are largely influenced by the market forces and no particular business can solely influence the prices. The second type of market structure is monopoly; this is the kind of market which is dominated by one firm. Basically, there is only a sole provider of a service or a product. There are barriers to entry in this kind of market and the company enjoying the monopoly usually posts supernormal profit. Also, this kind of market is characterized by a single firm that has a significant control over prices and supply (Shubik & Levitan, 2010). There are mixed opinions among economists and consumers in regard to whether monopoly is an ideal market structure or not. The third main type of market structure is the monopolistic competition. This is the kind of the market where while freedom for market entry and exit exists, firms have differentiated services and products. Unlike monopoly that is characterized by supernormal profits, the likelihood of normal profits in this kind of a market is in the long term…

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