Pamela A. Chandler
September 1, 2014
There are four basic market structures in finance, which are perfect competition, monopoly, monopolistic competition, and oligopoly. The perfect competition has a few firms producing the same product and sold at market price. Entry barriers are low and the only thing deciding the sales is the price of the item or service. None of the firms can change prices making the demand curve horizontal or perfectly elastic. An example of this type could be tomatoes grown and produced in a specific region.
Opposite of this type of market structure if the monopoly market structure. This type has only one seller or producer. Where the perfect competition market structure has a low entry barrier. Any country having a railway and such is an example of this type of market structure.
The next type of market structure is monopolistic competition market structure. “There are no products produced that are identical. The differences in the products are price, features, and branding along with some other differences. An example of this type of market structure could be hair sprays. The have the same uses, which are to hold hair in place however, the producers market them differently.
The different features are that some hold hair better; some are stronger while others are weaker, some smell differently, and priced differently or there are aerosol or spray types.
The last market structure is the oligopoly market structure that consists of just a few people needing to watch each other and their strategies. An example of this type could be cruise lines. The economics of the scale are high, which makes the firms differ with their features offered to the passengers. The Disney Cruise Lines for example offer all Disney features and service all ages of kids, young or old while other cruise lines offer more of the usual features such as bars, dancing, different activities, and swimming pools and such. However, each ship offers different activities from other ships. These ships cater more towards adults rather than children.
Future Growth Inc. (FGI) is an old company in business for about 67 years and did quite well financially up until a few years ago. FGI is a monopolistic competition market structure with many competitors in this type of business. Currently the company’s competitors are domestic as well as international. FGI manufactures construction and forestry equipment. However, each company competing in this business has small differences in their features as well as different functions. This lets the company furnish many substitutes.
In past years, FGI’s demand of the type of product the company offers has gone down. FGI slowed the advertisement revenue…