Market Structure You Believe Wal-Mart

¶ … market structure you believe Wal-Mart operates in (monopolistic, oligopolistic, monopolistically competitive, or purely competitive)? What characteristics of the industry support your position?

I would argue that Wal-Mart operates in a monopolistitically competitive market. It is not a pure monopoly since it has a number of rivals that to some extent share the same market sector (such as K-Mart and dollar stores). It is not an oligopoly because it does not act in a market with few sellers. The company itself would no doubt argue that it exists in a purely competitive market. However, even in a competitive market, certain firms can behave like monopolies for a period of time by using their establised market power to create profits. Wal-Mart's size allows it to behave like a monopoly since there are no true competitors. However, other companies can limit its power by differentiation. For example, Target can offer higher quality clothes, albeit at somewhat higher prices.

2. Do you believe the regulation of mergers should be more liberal given the current economic climate? Is there an economic justification for your answer? What economic benefits result from strict regulation? What economic benefits result from mergers? Are there circumstances under which the gain from a merger results in a net (overall) benefit to society after taking into account all the inefficiencies and all the benefits?

I believe that the regulation of mergers should be more strict than it is now. The fact that the country is not yet out of recession does not mean that the solution to the current economic problems is to allow a reduction of competition in the marketplace. Increased competition, which results from strict regulation, both reduces price (which will stimulate the market and increase jobs) as well as increasing innovation.

Mergers can be beneficial to both the companies (or at least one of them) as well as other stakeholders under certain conditions. Mergers can allow for economy of scale in terms both of buying raw materials and in terms of production costs. Mergers can also help at least come domestic companies become competitive with international ones. Mergers potentially free up increased money for research and development.

Yes, it is possible for mergers to be beneficial overall. There is no blanket yes or no judgement that applies to whether or not mergers are beneficial. They are generally beneficial if the above conditions are met along with the following conditions: There remains sufficient competition that the newly formed company cannot enforce monopolistic conditions and that there remains freedom of entry into the market sector for new firms.

3. Why are competitive markets considered more efficient than monopolistic markets? Give economic reasons. Give a real-live example of a market that tends to be competitive and one that tends to be monopolistic. Describe characteristics that support your classification. Is there evidence of efficiency or inefficiency in either of the markets you describe?