How do businesses decide what price to charge the customer for their products and services? How do they decide what to produce and or how much should be produced? These decisions mainly depend on the type of industry in which the business operates. In the United States, economists classify industries into four different market structures; pure monopoly, pure competition, monopolistic competition, and oligopoly. Understanding each of the four market structures allow manufacturer to manage its pricing strategy and production output. This paper will differentiate among those four market structures, while identifying pricing and non-pricing strategies used by the company within each market structure.
US mobile phone service industry is a perfect example of an oligopolistic industry. In this industry, companies are providing the same kind of service, but are also trying to differentiate themselves to attract more customers. The mobile phone service market was dominating by AT&T, Verizon, Sprint Nextel, and T-mobile with over 86.7%
of market share in 2007 and 82.5% market share in 2008. The two main players were AT&T with 71.3million subscribers and Verizon with 67.2 million subscribers. Since there are only four firms that are dominating the market, the companies are aware of the actions of others. For example, in 2008, Verizon introduces its $100 a month flat-rate plans. The plan includes unlimited calling and internet usage. One week after the new release, AT&T and T-mobile also announced their new flat-rate plan which is similar to Verizon's plan. AT&T charges $99 a month and T-mobile charges $99.99 a month. In January 2010, AT&T and Verizon both announced that they are dropping the cost of its unlimited calling plans from $100 a month to $70 a month with the same feature. This is an action responding to T-mobile and Sprint's price cut strategy late last...