Differentiating Between Market Structur Essay

Submitted By dbundrick
Words: 1249
Pages: 5

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ECO/365 Principles of Microeconomicsbr /
August 30, 2012br / br /
Differentiating Between Market Structuresbr / span classtab/spanRetail sales are indicators of microeconomic conditions presented in a given area at a particular place in time. Since Sam Walton opened his first Wal-Mart store, Wal-Mart has been making ripples throughout the micro economies of America. Wal-Martrsquos market structure is typical of most of our nationrsquos largest corporations in that they are an oligopoly (Brown, 2010). According to Colander (2010), ldquoAn oligopoly is a market structure in which there are only a few firms and these firms explicitly take other firmsrsquo likely response into account when making decisions.rdquo Furthermore, given that Oligopolistic firms are few, they are interdependent of each other and can either be collusive or noncollusive. It is this interdependence amongst the firms that distinguish them as an oligopoly vice a competitive monopoly. Target and Costco are considered to be Wal-Martrsquos competition because they offer similar products and services to their customers. Through personal experience this writer and his family members typically compare the quality of the item, to the price we are willing to pay for that item, and we usually purchase that item from the firm that offers us the best quality for the price and shopping experience. A byproduct of this competition is a term called sticky prices. Sticky prices are the result of an informal collusion behavior and correlates to a kinked demand curve as one reason firms do not lower their prices to outsell their competition. Any increase or decrease in price will be met by their competition, causing the less elastic portion of the demand curve and its corresponding marginal revenue curve to cause a kink in the demand curve. This kink causes the marginal revenue curve to have a gap and is resultant from the theory of sticky prices (Colander, 2010). One competitive strategy that Wal-Mart can immediately put to use to maximize their profits over the long run would be to limit the amount of retail locations they open nationally and increase the number of retail locations they are working to open internationally. The companyrsquos balance sheet shows that their international expansion has been the key to producing profits during the tough economic conditions of the previous several years. Many countries have a lower cost of living than Wal-Mart is accustomed to operating in and the decreased salaries and operating expenses overseas would serve to boost sales while increasing revenues. Wal-Mart can further maximize its profits in the long run through data mining product sales in order to establish market share for each retail location. This data would then be used to set-up the display of products for sale in a location and manner that would increase the volume of items sold. This strategy would cost Wal-Mart some time and money in the short run however it would generate more sales in the long run and increase customer satisfaction in the short run. Both lead to an increase in sales and therefore maximize profits. Wal-Mart has another strategy available that can assist in maximizing revenue. That strategy involves the equilibrium of the labor market in all of the locales in…