Discuss about the Four Basic Market Structures.
Dee beer Diamond Company has exercised monopoly through ensuring that the product they are dealing with has no close substitutes. In addition, the same product has a large number of buyers all over the world thus, controlling about 80% of the market share. They are in a position to set prices and influence the market ("AmosWEB is Economics: Encyclonomic WEB*pedia", 2017). Moreover their involvement in every category of industrial diamond mining: open-pit, underground, large-scale alluvial, coastal and deep sea, as well as aggressive advertising, make it hard for new market entrants thus maintaining the monopoly.
In a situation where the Dee Bee Company has to operate in a monopolistic environment, the company will lose the sole role of determining prices in the market. The company will also have to differentiate itself in the market by either branding or packaging in order to sell more. The market share will reduce from 80% to about 5%. The company will also seek alternative methods to lower its production cost in order to maximize profit (Mahoney, 2014).
The airline industry in the market cited by the study has dominant firms such Delta, as well as struggling firms such as the southwest airline. In addition, the companies ‘operating in this market are seen to be offering the same services differentiated class such as first-class, business class and economic class. Delta airline was the first to introduce flat-bed seats on flights from New York to London first class in an effort to attract more clients. The market has barriers to entry following aviation regulation for security and safety. The market has very high initial capital outlay that give first movers a minimum average cost advantage. In the case, southwest airline is frustrated in its efforts to penetrate the La Guardia market.
A careful analysis of the case study shows that the oligopolistic environment thatUnited and Continental Airlines are operating in seem to have a stable pricing, where by the competitive advantage that can help in wooing more clients is only providing better and quality services such as the flat bed seats by Delta ("Eyeing the Four Basic Market Structures - dummies", 2017) . The merger will help a lot in improving the services currently offered by the two airlines separately, as well as reduce the cost of operation. Moreover, they will have a wide customer base as they will pool together all their clients. In situations where the two companies decide to increase its prices, they will lose a large share of the market as they will become uncompetitive compared to other firms ("Market structures: Monopolies | Policonomics", 2017). If the firms reduce the prices of airlines, they attract a huge demand and increase the market share. The only barriers will be that the rest of the firms operating in the same market, as they might not allow the reduction of prices. Therefore the only way to ensure that they attain maximum profit on output is to collude with other airline firms and set a standard price, though collusion is illegal in oligopoly, tactical collusion is hard to detect and it is the only way that United and Continental Airlines can ensure that the oligopolistic market work for their good .
Eyeing the Four Basic Market Structures - dummies. (2017). dummies. Retrieved 19 January 2017, from https://www.dummies.com/business/marketing/eyeing-the-four-basic-market-structures/
Mahoney, D. (2014). Demand, Market Structure, Entry, And Exit In Airline Markets (Phd). University Of Oregon.https://scholarsbank.uoregon.edu/xmlui/bitstream/handle/1794/18338/Mahoney_oregon_0171A_10943.pdf?sequence=1
Market structures: Monopolies | Policonomics. (2017). Policonomics.com. Retrieved 19 January 2017, from https://www.policonomics.com/lp-market-structures-monopoly/
AmosWEB is Economics: Encyclonomic WEB*pedia. (2017). Amosweb.com. Retrieved 19 January 2017, fromhttps://www.amosweb.com/cgibin/awb_nav.pl?s=wpd&c=dsp&k=monopolistic+competition,+characteristics.