-
Essay / Forms of Industrial Organization - 1859
Forms of Industrial OrganizationIntroduction“In economics, market structure describes the state of a market in relation to competition” (Peterson, 2008). The main market forms are monopoly, oligopoly, monopolistic competition and perfect competition. A monopoly exists when there is only one supplier of a product or service. An oligopoly “refers to a situation in which there are few sellers for a product or service. Members of an oligopoly change the nature of a free market” (Peterson, 2008). Monopolistic competition exists when a large number of companies have a small market share. Perfect competition occurs when the market consists of a large number of firms producing a homogeneous product. Monopoly A monopoly is an “economic situation in which a single seller or producer provides a product or service. For a monopoly to be effective, there must be no practical substitute for the product or service being sold, nor any serious threat of competitor entry into the market. This allows the seller to control the price” (Peterson, 2008). Since the enactment of the Sherman Anti-Trust Act in 1890, monopolies have become virtually non-existent. An example of a monopoly is easy to cite: it held a monopoly until recent years and some would say that it still is: De Beers. “For most of the 20th century, De Beers sold 85 to 90 percent of the world's mined diamonds. With this leverage, it could artificially maintain diamond price stability by matching its supply to global demand. Rockefeller's Standard Oil and Gates' Microsoft may have briefly touched on this type of dominance, but the duration and extent of De Beers' supremacy are unprecedented” (Stein, 2001). Because De Beers controls the supply, even going so far as to buy its competitors' surplus, the company also controls the price of diamonds around the world. “Analysts say De Beers is succumbing to the inevitable: competition has reduced its control over the market to the point where it is no longer even a monopoly. But old names die hard, and the US government continues to ban the company from doing business there because it is considered a monopoly” (Keaton, 2000). OligopolyAn oligopoly is a form of market in which a market or industry is dominated by a small number of sellers. or oligopolies. Because there are few players in this type of market, each oligopoly is aware of the actions of the others. The decisions of one company influence and are influenced by the decisions of other companies.