Question

There are four key types of market structures in the market economy: perfect competition, monopoly, oligopoly, and monopolistic competition. Each of the market structures has its own key distinguishing features. The marketing strategies of firms also differ from market structure to market structure.

1. Pick a specific industry from one of the market structures and explain how it would function and maximize profit.

2. We are daily exposed to a number of advertisements on TV, in radio and in other places. Which market structures are the most dominant in the advertisement industry? Why?

Answer 1

1. I choose Monopoly industry. Monopoly refers to a market situation in which there is only one seller of a commodity. In this industry there are no close substitutes of the product, and there is complete barriers to the entry. So, it means there are no competitors in the market for that product. The monopolist decides the price of the product, since it has the market power. This makes the monopolist a price maker. The main characteristic of a monopolist is that it is a profit maximizer. Since there is no competition in a monopolistic market, a monopolist can set the price level and the quantity demanded. The level of output that maximizes a monopoly's output is calculated by equating its marginal cost to its marginal revenue. Since there is a single seller in the market it leads to economies of scale because big scale production which lowers the cost per unit for the seller. The seller may pass this benefit down to the consumer in terms of a lower price.

2. Monopolistic competition market structure dominates the advertisement industry.Product advertisement is important to firms in a monopolistic competitive market providing several benefits to the firm

• Persuades existing and new customers regarding product existence, features and availability to purchase the goods.
• Increases sales and contributes to economic growth escalating the firms demand curve higher
• Increases competition and lowers prices as rivals will also see promotion and retaliate with their own non-price action

A large amount of retail organisations use advertising in a monopolistic market. Starting a business is relatively easily, but staying in business is not and requires and convincing consumers that their product is different and better than that of competitors.