Market Structures

Introduction

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.

Oligopoly

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 who