Question

There are four types of market structures: perfect competition, monopolistic competition, oligopoly, and monopoly. “Perfect competition describes a market structure, where a large number of small firms compete against each other” (Zeder, 2016). With a perfect competition market structure firms maximize profits, firms can enter and exit the market as they please, firms sell identical goods, and there are no consumer preferences. “Monopolistic competition refers to a market structure, where a large number of small firms compete against each other” (Zeder, 2016). They sell similar, but slightly different products and are able to charge higher prices within a certain range. Monopolistic competition allows firms to maximize profits, enter and exit the market freely, sell differentiated products, and consumers have preferences. “An Oligopoly describes a market structure that is dominated by only a small number of firms” resulting in limited competition (Zeder, 2016). An oligopolistic market structure allows firms to maximize profits, set prices, limit the entry and exit in the market with barriers, create products that are homogenous or differentiated, and only a few firms dominate the market. The last market structure is a monopoly which “refers to a market structure where a single firm controls the entire market” (Zeder, 2016). Within a monopoly, the firm maximizes profits, set the price, set high barriers to enter and exit the market, and there is only one firm that controls the entire market.

Now that we have established the various market structures, I would have to say that the oligopolistic market structures best describes the environment within which my organization operates. I currently work for HCA, one of the biggest and fastest growing healthcare organizations. Here in Houston, TX we have numerous hospitals, however those hospitals are owned by few firms. For example, here we have Methodist, HCA, Memorial Hermann, and The Harris Health System. Any hospital you go to in Houston, TX is going to be owned by one of these organizations, thus limiting competition and allowing them to dominate the market here. They are all providing the same service, healthcare, but have their own standards in regards to the type of care provided at their facilities. Each organization sets their own rules and prices deciding whether or not to accept patients who are insured or uninsured, or only accepting patients with certain insurance providers to maximize their profits. All these characteristics align with an oligopoly market structure.

Healthcare is a very complex concept that will most certainly have challenges and opportunities arise from whatever degree of government intervention. The healthcare industry is nothing like any other industry and cannot be compared to them as such. The government can intervene in regards to health insurance, required education, certain rules and regulations governing such healthcare facilities, and so on and so forth. Any intervention by the government is important when people’s lives are at stake. This leads me to believe that because the healthcare field is heavily regulated by the government, not many new firms can just enter this market freely. Various factors must be met before one can simply establish a new hospital. I do not see a lower degree of government intervention happening, in fact, I see much more in this particular field especially when it comes to health insurance.

Question - this passge require analysis and breakdown

Answer 1

Breakdown: -

Depending upon the nature of the product being sold or the service being offered, we can categorize market types into 4 major types or categories. These are namely Perfect Competition, Monopolistic Competition, Oligopoly and Monopoly.

In perfect competition there is no product differentiation which means that products are same in their characteristics. Further no firm is big enough to change the price itself. If it charges lesser it would make considerable loss and if it charges more no one would buy from the firm. The consumer under this model are well informed and do not have any preference of one good over another.

The second is Monopolistic Competition. There are large number of small firms but what sets them apart from perfect competition is the fact that consumers here do prefer one brand over another and this basically happens because some product characteristic is different from the competitors offering. Brands here prefer to offer consumers some extra things which others cannot offer due to patent or other reasons.

We for our understanding have bundled the remaining two that is Oligopoly and Monopoly. While Oligopoly refers to a few firms controlling the entire market and being able to set prices and profits for themselves, Monopolies on the other hand are focussed on a single player having full control of the entire market and heavy barriers or restrictions to entry in the market are placed in both these cases.

Further, the case study details the healthcare sector and tells us that the author works for HCA which is one of the dominant players and the healthcare industry as such falls under the category of an oligopoly.

The detailed analysis of the same is as follows: -

The author has broken down to analyse the market he works in works. The healthcare sector in the United States particularly in Houston where he works.

The choices of hospitals are relatively limited. This is because the licences required to operate in the healthcare industry is relatively difficult to get when compared to other conventional business types. The main reason for this is that the healthcare industry deals with lives of people and we would require careful scrutiny before giving any party the right to operate as a healthcare provider in the United States.

Further, this setup resembles an oligopoly, primarily because the number of buyers is large whereas the providers is limited and there are heavy restrictions in place for entry.

An oligopoly is not always bad. You need to place restrictions to entry for healthcare systems since lives of people is at stake. Yet government regulation should not only extend to licencing but also to cost and profit margins if such industries exist. This would help in ensuring that returns are constant and that people have a choice to choose from.

Further, the case study illustrates that hospitals are given the discretion to choose which insurance providers to select and if to admit a patient or not is as per discretion. These practices tell us the down side of an oligopoly which is more in favour of the manufacturer and can cause problems for the general audience.

Please feel free to ask your doubts in the comments section.