Abstract

When it comes to the business world, there are four main market structures that are typically utilized. These market structures are perfect competition, monopolistic competition, oligopoly, and monopoly. This paper is going to look further into each of these market structures and define them, as well as look into the pricing strategies that each of them use. Towards the end of the paper there is going to be a real life case study that will review these market structures and pricing strategy in order to provide a better understanding of how this works.

Market Structures and Their Different Pricing Strategies

In the world of business and economics, marketing structures are considered to be the structures that assist with connecting buyers, sellers, products and services to one another. Some of the elements that market structures connect and work with are production levels, different forms of competition, different forms of products and services, ease of entry and exit from the marketplace, buyers, sellers, and even the agreement between particular agents (Hardison, n.d.). Depending on what type of market structure a company is either choosing to use, or is forced to use, will determine what type of pricing strategy they are going to need to utilize. To look further into the different pricing strategies, there needs to be an understanding of the basic market structures, which are perfect competition, monopolistic competition, oligopoly, and monopoly.

Perfect Competition

Perfect competition occurs when there are many buyers and sellers, no particular barriers to entry or exit, and also when the products or services that are traded are considered to be identical (Perfect Competition, 2018). Another definition of perfect competition by Samuelson and Marks (2014) says that perfect competition is when there are identical standardized products created and sold. According to Gallant (2018), perfect competition must include an identical product, be a price taker, have a small market share, have buyers that are aware of the products that the company sells and what the prices are, and lastly perfect competition allows companies to enter and exit the industry for free. When it comes to perfect competition, many economists are not believers in that this is actually possible due to the fact that there are many barriers for entry, there are very high costs in order to start up a business, and there are also strict government regulations that make it pretty difficult for a company to enter and exit an industry (Gallant, 2018).

According to Masibo (2016), the pricing strategy for the perfect competition market structure involves the demand and supply curves of the product, and will show the amount that the consumer is capable and willing to purchase. The supply curve also shows what the particular supplier is capable and willing to supply within the market prices (Masibo, 2016). The pricing strategy for perfect completion has to be equal when it comes to the supply and what the consumers can pay. Masibo (2016) describes this as the marketing being in charge of what the product or service price should be, and as long as the production cost is below the revenue then this market structure can continue to function properly.