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Distinction Between Market And Market Structure And Its Implications For Managerial Decision Making

1002 words - 5 pages

A market can be defined as a place or institutional arrangement which facilitates the interaction between buyers and sellers in a process that determines price and quantity sold. It can be a physical or virtual place and typically, the product being traded could be goods, service or information.
Market structure, on the other hand, refers to characteristics of a given market such as the size of the market, number of buyers and sellers, nature of product being sold, mode of pricing and nature of market information. The structure of any market has a great influence on the behaviour of buyers and ...view middle of the document...

If a manager desires to have some influence on the ruling price, then he must find a way to differentiate his product in such a way that rational consumers would not consider it as homogeneous with the products offered by other competing firms. If he does this successfully, then his firm would by implication have exited the perfectly competitive market into another form of market structure where seller’s influence on price is feasible.

Monopolistic Competition
Many industries that we often deal with have market structures that are characterized by monopolistic competition or oligopoly. As in the case of perfect competition, monopolistic competition is characterized by the existence of many sellers but each seller offer differentiated products, though the products are close substitutes of one another. There is also relative ease of entry into the monopolistically competitive market.
The capacity to differentiate its product from others in the market gives a firm under monopolistic competition a bit of control over the price it charges. Thus, a manager in this circumstance could look at charging higher price above his marginal cost so that he can earn excess profit. Thus, the price associated with the product is higher than the normal equilibrium level where marginal cost equates marginal revenue). As production under monopolistic competition does not take place to the point where price equals marginal cost of production, the net result of the profit maximizing decisions of monopolistically competitive firms is that price charged under monopolistic competition is higher than under perfect competition, and the quantity produced is simultaneously lower. Apparel retail market with many stores and differentiated products provide an example of monopolistic competition.

Oligopoly is a common market structure in which there are few competing firms with significant, obvious barriers to entry due to factors like large financial requirements, availability of raw materials, access to the relevant technology or...

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