Differentiating between market structures simulation

Market Structure: Simulation, Table and Questions

Perfect Competition

Monopoly

Monopolistic Competition

Oligopoly

Organization:

Creative Commons

Microsoft

Wal-Mart

Verizon

Goods/Services:

Software Licenses

Operating Systems, Processors

retail

Wireless Communication

Barriers to Entry:

Need for public/grant funding

High Research and Development / copyright costs

Costs of supplies and price/labor/production competition

Licensing

Numbers of Organizations:

Infinite

Many

Roughly

Price Elasticity of Demand

High price elasticity

Low elasticity

High elasticity

Low elasticity, some price collusion

Economic Profits

What are the advantages and limitations of supply and demand identified in the simulation?

The simulation demonstrates that supply and demand is limited in a sense to the role played by the consumer in the nature of a market place. That is, demand is seen as reciprocal to supply and is therefore used as a gauge to shape price. But as the simulation shows, this gauge must be contextualized by certain aspects peculiar to any given sector, industry or marketplace. Factors such as tax policy, licensing procedures, global commodity costs, and international trade policies help to forge markets in which many factors beyond supply, demand and consumer interests play a part. There is a distinct advantage in using supply and demand to promote an understanding of consumer behaviors and commodity availability. But subsequent notions about pricing must be channeled through a wide range of market-structure determined features such as the number of competitors, the nature of the industry and the behavior of goods and services on the open market.

Select an organization with which you are familiar. Identify the market structure of your selected organization. Evaluate the effectiveness of this structure for the organization.

Verizon is a company that I would describe as part of an oligopoly with three other wireless telephone and mobile web providers. These are at&T, T-Mobil and Sprint Nextel. The wireless provider industry does prevent the entrance of new competition because of the formidable costs of Research & Development and the proliferation of infrastructural support such as communication towers and fiber optic cable lines. Additionally, the FCC licensing that is required for operation in this field denotes that only those organizations with a suitable capacity for the provision of proper security, the adherence to certain regulatory conditions and the resource flexibility to absorb market fluctuations will be suitable to enter into the market.

This denotes that Verizon is one of only a few entities possessing these features. Verizon Wireless was formed from a massive merger which brought Bell Atlantic Mobile together with a number of other major wireless service providers in 1995 to establish what would become the largest wireless carrier in the United States. At present day, though Verizon has a few competitors, there are none who are larger or have a wider reach within the United States. With respect to its operations, Verizon Wireless is unparalleled. Indeed, it "is one of the strongest competitors due to the foundation of its large nationwide service area and strong customer base. With two quarters of 1.9 million net additions, it has set the bar for competitors to reach." (BW, 1)

This is based on a convergence of extremely visible advertising tactics via television, radio, billboard and sponsorship with a service quality that is unmatched. Boasting and demonstrating a wireless network which shows limited gaps in service reliability if any, Verizon is shown to be particularly competent in the area of wireless service quality. This is its most distinctive competency, with the fewest dropped calls recorded by its customer base and the most expansive calling area in the business.

Analyze how organizations in each market structure maximize profits.

As part of an oligopoly, Verizon possesses this distinction and is simultaneously part of a price-controlling group of firms. This allows the company to maximize profits at its own volition, particularly as it has succeeded in distinguishing itself yet further by its service quality in an already exclusive market context. This is to denote that the oligopolistic firm will ultimately be in a position the determine price ranges for its services to the extent that its relative market advantage will sustain it over the few competitors in the market.

This is only slightly different from a firm engaged in a Monopolistic Competition such as with Wal-Mart. Here, Wal-Mart is in a position to drive the prices of retail items. Its enormity allows it to produce and distribute goods at a much lower cost than other competitors. As a result, it maximizes profits by undercutting smaller competitors on consumer prices. Often, it is able to sustain this practice to the point of driving competitors out of a market and establishing temporary monopolies.