Market Structure Assignment Example | Topics and Well Written Essays - 2000 words

Market Structure - Assignment Example It is a more realistic market structure in which a few firms dominate the market, and are able to influence the conditions to a greater extent. Although, there may be many small firms operation in the same market, but they will just follow the lead of the few firms. (Krugman, 2012) KFC is an example of monopolistic competition. The firm is competing against the same-sized restaurants like Wendy’s, McDonalds, Pizza Hut and others. These firms try to differentiate their products and then price them accordingly. Wireless service providers are a good example of a n oligopoly structure in the area. Four of the firms namely AT&T Mobility, Verizon Wireless, T-Mobile and Sprint Nexte dominate the market and control around 89 percent of the total telephone service market in the United States. US Postal Service is still one of the monopolies operating in every city of the United States. The firm has a potential high barrier to entry- a license from the US government, has the potential to influence the market conditions as well as it does still have unique product attached to itself. There are empirical studies present that specifically tell us the relationship between the barriers to entry and long term profitability of the firms. Research evidence suggests that the firms will set the price close to the cost if the barriers to entry are non-existent or low in a particular market. In this case, the firms do make a bigger profit in the short run; however, they believe that the entrance of the new firms and competition, the profits will erode. (Krugman, 2012) In a monopoly, the barriers to entry are really high which protects the market from strong competitive pressures. These barriers could be licensing, patents and economies of scale. Therefore, the firm earns a high profit in the long run. However, there will be time when the long run profits will not be positive. When the average total cost curve is above the demand curve, the