Market Structures
University of Phoenix
Market Structures
Before making decisions concerning the price or production of a product, it is important to first know what market structure it falls into. The four market structures – pure monopoly, monopolistic competition, oligopoly, and pure competition – differ in number of firms in the industry, whether those firms produce a standardized product or try to differentiate their products from the other firms, and how easy or hard it is for firms to enter the industry. (1) For Quasar, the pricing and production of their new optical notebook depends on the market model it has entered at that time.
In 2003, Quasar invented the Neutron, an all optical notebook computer. The Neutron was five times faster than existing microchip based computers and contained a rechargeable battery that could last up to three days. Having a patent for their newly invented technology that lasted for three years put quasar into a monopolistic market. A pure monopoly “exists when a single firm is the sole producer of a product for which there are no close substitutes.” (2) During this time, Quasar’s main focus was to maximize profits mainly through pricing. Being in a monopoly made Quasar the price maker, which meant they could get away with increasing prices since there were no close substitutes. (3) They later increased advertising and invested in streamlining their manufacturing to increase profits.
Quasar’s patent expired in 2006, which pushed them into an oligopoly market structure with Orion technologies that had produced a similar product to the Neutron and had captured 50 percent of the market. An oligopoly occurs when “a market is dominated by a few large producers of a homogeneous of differentiated product.” (4) During this time the focus for Quasar, or any firm in an oligopoly, was the price of the competitor’s product. Upward price changes may not be followed by all competitors in an effort to gain sales, but downward...