The Four Market Structures

Economists group industries into four distinct market structures: pure competition, pure monopoly, monopolistic competition, and oligopoly (McConnell & Brue 2004). Understanding the different market structures will help to understand how price and output are determined and will also help to evaluate the efficiency or inefficiency of those markets (McConnell & Brue 2004). This paper will briefly

explain each market structure and will also explain how Quasar Computers evolved through each structure.

Monopolistic Competition
Monopolistic competition is defined as “a market structure in which several or many sellers each produce similar, but slightly differentiated products, each producer can set its price and quantity without affecting the marketplace as a whole” (InvestorWords, 2008). Quasar Computers is under intense competition within the computer industry. The company pioneered an optical notebook computer; new competitors have entered the market making optical technology easily available. Quasar planned ahead and set aside $200 million to develop their brand and keep their product differentiated. By thinking ahead and being proactive Quasar proved that they were ready for the monopolistic competition.

Quasar Commuters has evolved into an oligopoly market because the patent on the optical technology expired. “Oligopoly involves only a few sellers of a standardized or differentiated product; so each firm is affected by the decisions of its rivals…” (Brue, McConnell, 2004). Orion Technologies has entered the optical notebook market. Quasar must effectively price and advertise their product in order to gain additional market share from Orion. Orion competitively lowers their product price to beat the price of Quasar, causing Quasar to lose additional market share. Although Orion is lowering its prices and increasing its market share, the company is not increasing its revenue. A balance must be made between the cost of the product to be sold and the amount of revenue that each company will achieve.

Perfect Competition
Characteristics that make perfect competition unique are the market usually involves identical, standardized products that are produced in mass quantities. Perfect competition products do not set pricing and market entry and exit is easy for an organization. Quasar recently acquired a controlling interest in Opticom the organization whom supplies Quasar with Optical Display Screens (ODS). Quasar is trying to determine the best strategy for making the organization profitable. A requirement of the perfect competition market is that products are identical; product improvements will mean Quasar’s products are no longer similar to their competitors’ products resulting in above-market profits. Eventually, Quasar’s competitors will duplicate their products, which could decrease market prices and revenue.

Even though a monopolist r is a price maker, cost cannot be passed on to customers. Quasar has to be careful in raising their prices. This is due to a downward slope, by a monopolist. However, an increase will lead to a decrease in demand. Therefore, to improve profits even a monopoly player has to invest in advertising, improve productivity, and eventually cutting costs [This sentence is confusing. Rework for clarity and conciseness. (16b)] . Quasar’s advertising team or department has to strategize carefully their planning, therefore, by not to increase significantly, customers like when prices fair are and reasonable. [This sentence is long and confusing. Please rewrite for clarity.(16)] Realistically consumers like bargains, uniqueness, and easiness.

Quasar computers have had the opportunity to operate in all market structures. By learning and understanding those market structures, Quasar has effectively made smart business decisions when faced with the challenges of operating in each market structures. Quasar has a better comprehension of price and output determination. Making more informed and educated decisions has enabled Quasar to evaluate their efficiency or inefficiency more in-depth in their respective markets.