Differentiating Between Market Structures

Essay by angelz2uCollege, UndergraduateA+, January 2010

download word file, 4 pages 0.0

Four market structures frame today's economic markets. Knowing the difference between the four can help a business or organization to realize fully which market they would be best suited and where they could maximize profits. The University of Phoenix's Differentiating between Market Structures simulation (University of Phoenix, 2003) assists to understand the difference by giving a hands-on experience. This paper will discuss the simulation along with Visa's market structure, the effectiveness of this market and how the different markets maximize their profits.

SimulationThe user of the simulation was declared the CEO of the East-West (EW) Transportation Company in which its main lines of business were road and railroad freight transportation. The company had four major divisions: Consumer Goods, Coal, Chemicals and Forest Products. As CEO, the user was asked to review several market conditions and make decisions based on the information that was supplied to the user by a consulting firm partner, Tanya Roy and by the senior vice president of strategic planning at EW, Peter Schultz.

Supply and DemandThe EW Consumer Goods Division had advantages of demand since they were able to buy at market prices. The division is in a perfect competition market which allows for the perfect elasticity of demand. This, in turn, allows for distribution of the goods more efficiently. The limitations of supply are notorious for this type of market. Once the price is accepted, a profit can be seen if the price is above the total cost or if the price is below the cost but above the variable cost. If the price is under the variable cost, no profit can be made.

The EW Coal Division in the second scenario can be deemed a monopoly. In such a market, the division has the advantage to set prices at a point where the...