Differentiating between market structures



Nathan GalvinEnglish 2010Professor AsplundWhy do some markets thrive in a downed economy? Why some markets tend to thrive in such a downed economy when other are laying off employees, closing store locations and reducing pay and benefits for employee seem to be a mystery for even most people and perhaps puzzling even some economists. Many factors contribute to this, such as rising food cost, higher fuel prices, and giant retail supermarkets dominating the playing field. I is a well know fact that when you are able to purchase larger quanaties at one time manufactors are more likely to offer you better pricing. While smaller grocery stores, sometimes referred to as mom and pops, are unable to compete with the larger grocery buying power and rely on loyal customers to continue to support their business, however when the economy is down many of those once loyal customers are choosing lower prices over loyalty! Almost all of us have visited a supermarket, but why do we go there? OK, the obvious answer is 'to buy things', but why do we go specifically to a supermarket rather than a local 'corner store' or somewhere else? Is it good that we go to a supermarket, or perhaps we should be shopping elsewhere? The answer probably depends on who you are and what you think about a large number of different issues such as 'value for money' , 'convenience', 'fair trade', 'food quality', 'freedom of choice' and so on. These consumers are looking for specific products or services to help maintain their standard of living. In order for people to obtain their needs and wants they must first enter into a market. The United States economy supports many different markets and business models; public goods, private goods, common resources, and natural monopolies. Along with providing goods and services, the markets create jobs for society. These jobs may be a direct reflection of the market economy. The price of labor tends to move in patterns associated with good and bad economies.Public and Private Good, Common Resources and Natural MonopoliesIn this paragraph, we compare and contrast public goods, private goods, common resources and natural monopolies, this also give a little background and insight as to why and how these monopolies are formed. These goods share one commonality; all are allocated in a market system. Some are allocated more efficiently, as in the case of public goods and natural monopolies. Natural monopolies and public goods are similar because they are excludable. Consumers can not enjoy the benefits of these goods without paying for them. However, in the case of public goods and common resources, these services are non-excludable. The public can enjoy these goods without paying for them. Free goods provide a special challenge in the market because the forces that normally allocate these resources are not present (Mankiw, 2008). When goods are free, the public tends to over use them. This is known as the free-rider problem. As mentioned earlier, private goods and natural monopolies are excludable; however, private goods are rivaled in consumption and natural monopolies are not. When a good is rivaled in consumption, one persons use diminishes the benefit of use by another person. This is also the case with common resources. Public goods typically are not rivaled in consumption. There are instances, however, when public goods are rivaled in consumption as in the case of congested highways, or overcrowded parks (Mankiw, 2008).Pay and benefits can impact how business will thriveWhen the supply (workers in the labor market) increases, it is based on wages that are being offered at a higher rate causing people to be more interested in obtaining work, more people entering the workforce for the first time, or going back to work after taking time off for personal reasons. Most of these individuals are seeking out competitive wage and good benefit packages. Larger companies are able to attract these potential workers, by usually having more jobs available, offering hiring bonuses, and stock options. When the supply of workers decreases it can be caused by emigration, falling wages, company’s failing and leaving the market, and negative attitudes towards work (Reed,?2002). Workers tend to earn the market value of what they are producing. The demand for labor indicates how much a firm desires at different prices. This can be based on labor substitutes, preferences, demand curves for the products or goods, and alternative employments for their resources (LaFaive,?2001).Wal-Mart has a perfect competitive market structure. They have many competitors that are either very similar or that sell a particular type of merchandise such as electronics, but with downturns in the economy, or when recession hit, they can operate more like monopolistic competition. This is an observable fact for which their CEO, Lee Scott, openly admits they have the upper edge. According to?CNN Money?(2009), “I feel we are well positioned for an economic downturn. Our low prices and low-cost business model should give us an advantage over other retailers if things get more difficult for consumers” (? 10). This is because Wal-Mart sells what is termed “inferior goods,” or goods that are more in demand when household incomes decrease. Due to our current market difficulties, Wal-Mart has effectively structured their company to gain market share as other competitors lose their share of the market. Not only is Wal-Mart the world’s largest retailer, but also the largest corporation and private employer in the United States. One factor that affects the labor demand and supply is quite often geographical. Because Wal-Mart pays most of its associates minimum wage, and having a huge market share, they demand more labor than many of their competitors. While Wal-Mart is frequently accused of paying less than its competitors, many of them also pay minimum wage or slightly above. This means that Wal-Mart is more than able to attract its fair share of the labor supply. However, as Wal-Mart expands they become more of a target to unions, and especially two unions, Service Employees International Union, and United Food Commercial Workers union. If these two unions are successful in unionizing Wal-Mart, the corporation can expect higher wages and labor cost. As labor costs increase, merchandise costs will go up. This will most likely lead to lower sales and less demand of labor. In the competitive supermarket business it is a kill or be killed kind of mentality. Where many chains of groceries store’s we locally and family owned passed down through the generations. These same stores are looking to, or being forced to join with other retail giants, such as the merger between Smiths and the retail giant Fred Myer in 2004, who had already merged with Kroger another supermarket giant, this is where the Smiths Marketplace derived from (Wikipedia May 2008). This brought about many changes for Smiths, including but not limited to, early retirement, pay rate deductions, cut in retirement and benefit packages. As I spoke with different employee’s that are saying that they are just happy to have a job. It is no secret that Smiths has become super competitive with weekly ads, fresh value deals and fuel rewards. It has been able to not only with stand hits from super competitors like, Wal-Mart, but the latest supermarket giant Winco Foods, but has able to re-coop a lot of the lost business. Conclusion: Society is full of markets, each market being just as important as the next. Society needs a thriving economy to function and sustain quality of life. In the economy, we need a diverse group of companies and services that offer public goods, private goods, common resources, and natural monopolies. Job creation is a crucial component for a successful market economy. When the supply and demand of labor reaches labor market equilibrium, both the worker and employer are satisfied. Although, not the full potential of labor is working it does allow for a large portion of society to participate in an open market. Perfect CompetitionMonopolyMonopolistic competitionOligopolyExampleFruit and Vegetable StandsElectric CompaniesRestaurant chains ( McDonalds, Burger King, Jack in the BoxInterbrew, Scottish and Newcastle, Guinness, and Carlsberg TetleyGoods or ServicesFruits and VegetablesElectricity Hamburgers, fires, milk shakesBrewersBarrier to entryIt is relatively easy to enter or exit Only one company is allowed to participate in any given market, so if one enters the other leaves.All firms are able to entry the industry if the profits are there to be made. There are few barriers to entry or exitIt is relatively difficult to enter or exit. These four firms have about a 85% concentration ratio in the marketNumbers of organizationsUnlimited, there are as many producers as the market can beamOneThere are many producers in the market place.FourPrice elasticity of demandbuyers can easily switch from one seller to the otherBuyers have no choice in switching from one seller to anotherThere are many producers selling different products, but still consider close substitutes. Since there are substitutes, this type of market tends to have elastic demand.Beer is inelastic in demand. There are no close substitutes. Economic profitsYesYesNoYesReferencesCNN Money. (2009). . Retrieved August 6, 2009, from ReferencesCNN Money (2009). . Retrieved August 6, 2009, from LaFaive, M. D. (2001). Mackinac center. Retrieved August 7, 2009, from market equilibrium. (2009). PowerPoint. Retrieved August 7, 2009. Retrieved from (2008)pptMankiw, N. G. (2008). Public goods and common resources. In W. Mike, T. Jane, & V. Alex (Eds.), Principals of economics (pp. 223-238). Mason, OH: Thomson South-Western.Reed, W. L. (2002). Mackinac center for public policy. Retrieved August 7, 2009, from 's_Food_and_Drug May 2008 ................
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