Microeconomics Market Structure

Market Structure
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Introduction
The local mayor has hired me as a consultant to assess different market structures. The role that the local mayor expects me to carry out is to conduct an analysis and respond of the following vital questions which will assist the mayor understand various market structures of many businesses that operate within this city. This paper aims to examine different types of market structures, discuss examples related to the market structures, assess effect of price elasticity of demands of different market models, and discuss the role of government and impacts of international trade on various market models.
Question 1: Discuss each market structure (perfect competition, monopoly, oligopoly and monopolistic competition) and examine two characteristics of each market
All organizations which operate in the market intend to maximize their revenues at their output level. Organizations run their activities in a diverse environment, and such environments are created in different market conditions; thus organizations behave differently in accordance to diverse market conditions (Balboda, Daughety and Reinganum, 2004). The characteristics of every market have the influence on different demand curves of organizations in a different category. There are four different major market models such as oligopoly, pure competition, pure monopoly and monopolistic competition. Pure monopoly, oligopoly, and monopolistic competition are known as imperfect competition since competition among these market structures is limited.
In a pure competitive market structure, there are high numbers of organizations creating standardized products. Market prices are set by consumer demand. No suppliers have influence over market price; therefore, suppliers are known as price takers. This is because there are several organizations operating the market because there is low barrier of market (Jensen, 2006). A good example of pure competitive market is agricultural products like soybeans, wheat, and corn.
Monopolistic competition is similar to pure competition since there are several suppliers and there is a low barrier to market entry. Nevertheless in monopolistic competition, suppliers try to create certain price advantage and they do this by differentiating their products to be different from other similar products (Redmond, 2013). Consumer goods like beauty and health aids are categorized into this monopolistic competition market structure. Suppliers try differentiating their products to be better to set higher prices or gain larger market share than other competitors. In monopolistic competition, suppliers try to convince consumers through advertising, and this creates product superiority.
An oligopoly is referred as a market that a few suppliers dominate. There is high barrier to market entry; therefore, many new entrants are barred from competing in the market. The oligopolistic organizations have an influential role over the market price of their products. Nevertheless, they have put into consideration of activities of other organizations in the market when they change prices to neutralize any changes and to maintain their market share (Kyer and Maggs, 2014). A good example is auto manufacturers since fixed cost of manufactured vehicles are very high therefore limiting new entrants not to enter the market.
In a pure monopoly, only one supplier is operating in the market. The supplier has great market power and sets the price of its product. There is little competition due to high barrier to market entry (Balboda, Daughety and Reinganum, 2004). A good example of a pure monopolistic firm is Microsoft.
Question 2: Present one real-life example of a market structure in the local city and relate the example to every characteristic of the market
A life example of the market model within the city is the presence of oligopolistic market in which oligopolistic firms have dominated the market within our city. A good example of oligopolistic firms taking advantages of markets within our city is auto industry that is constituted of auto manufacturer firms such as Chrysler, GM, and Ford. These oligopolistic firms are noticeable in several markets. Whereas these firms are regarded competitors within our city, they tend to collaborate with one another to benefit themselves by creating higher prices for customers (Balboda, Daughety and Reinganum, 2004). The influence of the big three auto manufacturer firms can be seen in the introduction of new vehicle models and prices of such vehicles existing markets. Collaborative behaviors have been seen in the big three auto manufacturers in the creation of new small cars. Chrysler, GM, and Ford are known to have formed a cartel to protect their dominance within the market to bar new entrants from entering the market.
It is evident that Chrysler, Ford, and GM collaborate trying to avoid aggressive competition among them by pricing jointly their products in the market. The big three firms function like a single monopolist when they determine pricing decisions and intend to maximize their shared profits rather a single company rushing to amass entire profit (Balboda, Daughety, and Reinganum, 2004). The automobile manufacturers set prices relatively at a similar rate with a minimal difference to jointly maximize profit in the markets.

Question 3: Identify how entry barriers into a market impact on long-run of organizations’ profitability
The barriers of market entry are present in oligopoly and monopoly markets. High run profits for both oligopoly and monopoly are created as a result of a high barrier to business entry by open competition (Jensen, 2006). The barrier to entry is the inability for organizations to enter the market because of the brand, cost, infrastructural, financial and legal barriers. The high cost of entry market discourages new entrants from entering the market; thus limiting competition. High barrier to entry is exhibited in oligopoly or monopoly power.
Some of the factors creating barriers to market entry include patents, control over an important resources, government licensing, and economies of scale. Monopolist Company may create high entry barriers so that other competitors not to enter the market. Jensen (2006) presents that a singer seller may become a dominant firm in the market, and therefore, enjoys high profits. There is no substitute product in such market. The monopolist maximizes its profits and increases its output until marginal revenue equals marginal costs. High entry barriers safeguard monopolist from facing competitive pressures.
In oligopoly market structure, there are few numbers of rival companies. These firms are independent and products produced may be differentiated or identical. There are high barriers to market entry and presence of high economies of scale (Jensen, 2006). For example, oligopoly perfectly exists in the automobile industry. Oligopolistic firms struggle differentiating their products as a way of gaining increased market share, get more customers and higher profits. Both high economies of scale and the high barrier to the market entry mean that many new entrants are barred from entering market while oligopolists enjoy making huge profits in the market.
Question 4: Identity the competitive pressures present in markets with high barriers to entry
There are six factors that create competitive pressures in the markets with high barriers to entry. First, economies of scale happen when increased output results into lower average costs. Thus new organizations, with relatively low output, will get it difficult to compete or enter into the market since their average costs will be greater than the existing companies that benefit from economies of scale (Kyer and Maggs, 2014). Therefore, a high average cost is a barrier to market entry. Secondly, legal patent offers a pure monopoly the advantage of dominating in the market since other organizations cannot utilize its patent.
Thirdly, expertise and knowledge have helped oligopolistic firms like Google and Microsoft to become technological giants. New entrants find it difficult to enter into such market. Fourth, government policy bars new firms to enter into the market due to various controls like licensing requirements. Venturing in highly regulated industries is quit...