Structures in Prevailing Market Structure

Question: Discuss about the Structures in Prevailing Market Structure. Answer: Every industry has a prevailing market structure. In economics, market structure refers to the specific social organization that exists between buyers and sellers in a particular market. They are models of markets that describe a specific social structure between buyers and sellers of that market. It is the pattern in which buyers and sellers in a particular market are arranged together. Various characteristics determine the market structure, among them the relations of sellers in the market to each other, the relations of buyers in the market to each other and the relationship of sellers to the buyers. The major types of market structures are an oligopoly, monopoly, perfect competition, and monopolistic competition. There are various features of a market structure. The degree of seller concentration determines the number and size distribution of firms producing a given commodity in the market. In addition, the level of buyer concentration reflects the number and size distribution of customers for a particular market (Ellisckson n.d.). Similarly, the extent of product differentiation determines the difference in the products produced by various firms. Lastly, the condition to market entry is also necessary for market structure determination (Levin 2009). All these features help determine whether a market is an oligopoly, monopoly, or perfectly competitive. Oligopoly Market Structure in Australia An oligopolistic market structure has few large firms dominate the market. Often, these companies have a significant market share and high market power. Although only a few large corporations dominate the market, it possible for small business to also operate in the market. However, the big businesses collude in the market to create high barriers to entry, making it difficult for small firms to thrive in the market. The products in this market are highly differentiated. As a result, the competition is often of non-price factors (Tyers 2014). Additionally, the actions of firms in this market are interdependent. As such, the actions of one firm affects the other businesses in the industry. It is worth noting that oligopoly is the most predominant market structure in Australia. Various industries are served by oligopolistic firms, among them supermarkets, and the air transport sector. In Australia, two major supermarket chains control the industry. Specifically, Coles and Woolworths control between 70 and 80 percent of the total market share (Australian Oligopolies 2014). The remaining 30 percent is a small boutique niche occupied by the IGA group, Aldi and a raft id smaller independent businesses (Supermarket Sweep 2013). Monopolies Market Structure A monopolistic market structure is characterized by the dominance of one single seller in the entire market. In this market, the firm can determine and sets its prices at a point that maximizes its profits. There are great barriers to entry in this market caused by either the presence of technological barriers, high capital requirements, patents, government regulations and distribution overheads (Irvin 2010). Consumers have limited choices as the monopolists products often lack close substitutes. This market condition usually arises from take-overs, mergers, and acquisition of firms. Monopolies can be established by the government, form by integration or form naturally. The Australian Securities Exchange is a perfect example of a monopoly market structure. The Securities Exchange has great dominance in the important markets of banking and finance. It has evolved its business to the point where it fuses with the apparatus of government (Khan 2016). However, the Australian Securities market is flawed with continuous regulatory concession. There is limited competition. As a result, there is increased costs to the end users, especially investors and fund managers in the country (West 2013). In addition, monopolies stifle innovation and advancement rendering the market is inefficient. Monopolistic Competition in Australia This market structure combines the elements of perfectly competitive market and monopolies. Its a form of imperfect competition where many sellers produce differentiated products. Hence, their products are nor perfect substitutes as products differ regarding quality and branding. It is worth noting that a firm often takes the prices charged by other businesses and ignores the effect of its actions to that of its rivals (Krugman Obstfeld 2008). Additionally, the market is characterized by a few barriers to entry and exit. Usually, consumers perceive that there are non-price differences among the competitor's products, and therefore do not consider these products as perfect substitutes. Goods are heterogeneous. As a result, competition monopolists compete on non-price factors based on this subtle product differentiation (Pettinger 2008). In short run, firms may make supernormal profits. However, in the long-term, it will only break even, making normal profits. This can be attributed to the fact that demand decreases and the average costs increase over the long term (Baum McPherson 2012). This suggests that a monopolistically competitive market makes zero economic profits in the long-term. Producers have some degree of control over their price. The Hotel and Restaurant industry in Australia is a good example of monopolistic competition in Australia. As such, there are various major restaurants in the country which exercise a degree of market power based on their differentiated products. The top restaurants in the country include Attica, Sepia, Quay, Ester, Sixpenny, Bennelong, and Rockpool, among others (Australias Top Restaurants 2016). Notably, product differentiation among restaurants permits market segmentation which in turn enables individual businesses to set their prices within limits (Monopolistic Competition 2006) Restaurants often rely on advertising their products and menus to highlight the real and perceived differences between their products and those of the competitors. It is the optimal level of advertising expenditures that maximizes the firms profits. Conclusion The structure of a given market plays a significant role in determining the relationship between its constituents. The market structure influences the degree of competition, the number of firms, and the number of sellers. Similarly, it determines the extent of product differentiation in the market. In Australia, there are various market structures such as monopolies, oligopolies, monopolistic competition. Notably, the type of market structure determines the extent to which a firm can change the price of its products without affecting its sales and losing its customers. For this reason, it is important for companies to understand the market structure in which it operates. Reference List Australia's Top Restaurants. (2016). Australias Top 100 Restaurants 2016. [Online] Available from: https://www.australiastoprestaurants.com/top100 [Accessed 4 Dec. 2016]. Baum, S. and McPherson, M. 2009, Monopolistic Competition and the Very Small College. [Online] Available from: https://www.chronicle.com/blogs/innovations/monopolistic-competition-and-the-very-small-college/31279 [Accessed 4 Dec. 2016]. Ellickson B. Market Structure and Performance. 1st ed. [Pdf] University of Rochester, pp. 2-13. Available from: https://paulellickson.com/MarketStructure.pdf[Accessed 2 Dec. 2016]. Encyclopedia Britannica. (2006). monopolistic competition | economics. 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