Week 3 Case Study: Market Structure, Market Power, and Profitability
A market refers to a group of buyers and sellers of a good or a service and the institution or arrangement by which they come together to trade. The interaction of supply and demand determines the quantities the suppliers are willing and able to produce, as well as the market price. According to the law of demand, people demand more (quantity demanded) when the price declines. Alternatively, if the price increases, the quantity demanded for the commodity decreases; however, the degree of change in quantity demanded depends on the level of the elasticity of demand that commodity has. If a given commodity is a necessity or if it has fewer or no substitutes, then a change in the price will not affect demand significantly. For example, we don’t respond the same way when the price of gasoline changes as we respond when the price of soft drinks changes. Gasoline is a necessity commodity, but soft drinks have many substitutes and are not a necessity.
Market structure is defined as the organizational and other characteristics of a market that affect the nature of competition and pricing. Suppliers in a monopoly market structure, such as natural gas suppliers for example, have no competition and they can set the price of their commodity however they want. For this reason, monopolies have high level of market power. On the other hand, suppliers in perfect competition market structure, such as corn growers, have many competitors and they sell identical commodities. As such, they are price takers and have no control over market price.
The general rule is the higher the level of market power a supplier has, the higher the level of control they have over prices and the higher the level of profitability they can achieve.
This assignment is intended to determine the efficiency and profitability of different organizational arrangements. An organization could be a small business (a restaurant, a hairdresser, a singer, an artist, a gift shop, a street vender, etc.), a large private organization (a manufacturer, a university, a hospital, a charity, a distributor, a transportation provider, a bank, etc.), or a governmental agency (a public school, city services, a correction facility, a tollway, a park district, a postal service, a public transportation, etc.). You could choose to discuss the market structure in which a specific organization is operating in, or you could choose to discuss the advantages, disadvantages, and differences between larger structures such as private versus public ownership, capitalism versus socialism, and corporate ownership versus small private ownerships.
To start, select an organization (a private small business, a corporation, a charity, or a government agency) that you wish to analyze for this assignment.
Your research needs to be structured with consistent and clear thoughts. It also needs to be supported by facts and data. Your results need to be based on solid facts. Your conclusion and opinion need to be thorough and based on your findings and understanding of the characteristics of different market structures.
Writing Style and Page Number Requirements
Font Type: Times New Roman or Arial
Font Size: 12
Number of Pages: Four to six pages, including a separate Title page and a separate References page
Structure and Requirements
• Title Page
o Title of the paper
o Name of the author
o E-mail address of the author
o Class name
o Professor’s name
Describe the organization that you wish to analyze. State its commodity, business model, target market, specialization, product differentiation, pricing strategy, and market share. In addition, describe the market structure it operates in (monopoly, oligopoly, monopolistic competition, or perfect completion) and state the characteristics of this business that make it fall into this market structure. Moreover, state the organization’s main competitors and the strategies it uses to remain competitive in the market. In addition, state that one characteristic that its commodity has that makes them unique in their market.
o Obtain data from at least three credible sources (not Wikipedia) to provide facts about market share, pricing strategy, growth, revenue, and profit maximization approaches.
o Use tables, graphs, and figures to support your argument (if available).
Here, you need to determine whether the commodity this organization provides is elastic or inelastic, and why. Then discuss the advantages and disadvantages, as well as opportunities and threats, of operating in this market. In addition, discuss the profit maximization strategies this organization uses. Moreover, discuss the level of market power this organization has in the market they operate in and the reasons they have such market power. Do they have control over prices (price maker) or do they have no control (price taker) and why?
Provide your own final thoughts, opinions, and understanding of the benefits of operating in this market structure. Also, state what else this organization could do to gain more market power and to maximize their profits.
• Reference List
Use at least three professional sources to support your argument. The references need to be in APA format. To learn more about APA format, click on the link below.