Running Head: MARKET STRUCTURE ANALYSIS
An Analysis and Evaluation of Market Structures
Jason Bochert
American Military University
ECON600 – Managerial Economics
March 5, 2017
MARKET STRUCTURE ANALYSIS 2
Abstract
In this paper there will be four market structures discussed as well as the pricing strategies related to
them. The market structures will include perfect competition, monopolistic competition, oligopoly, and
monopoly, each of which are separated into their own section for easy identification. Following each of
the market structures, this paper will endeavor to discuss the market pricing strategies of each individual
structure. This paper will also discuss a case study of Verizon Wireless Company as an example and
explains the market structure of that company as well as the pricing strategies they have employed. The
pricing of their products and the development of relationships with cellular phone providers will also be
discussed. In addition to these attributes, the standing of Verizon within the industry and their future
outlook will be considered. Finally, this paper will demonstrate the relationships and importance of
market structures and pricing strategies, having used real-world examples where possible and providing
an explanation of why real-world examples may not be possible.
MARKET STRUCTURE ANALYSIS 3
Introduction to Market Structures
All markets that exist within any economy must have a specific market structure in which they
reside. Without such a market structure, there would be little organization and chaos would reign within
the business community. The Business Dictionary defines market structure as “The interconnected
characteristics of a market, such as the number and relative strength of buyers and sellers and degree of
collusion among them, level and forms of competition, extent of product differentiation, and ease of entry
into and exit from the market” (market structure definition). Without a sufficient number of buyers and
sellers any market system or economy is destined to devolve. Market structures measure not only the
number of sellers, but how well they get along and work together for the accomplishment of their ultimate
ends. On many occasions, businesses will work together to their benefit, but the detriment of competitors
and sometimes even customers. In addition to these characteristics, the competition that develops within
an economy or a market is a big determining factor of the health of that market. Every market system
which has any degree of freedom and autonomy to it will have different products that are developed over
time. A final part of a market structure is the ability of that structure to be flexible and adapt to the
change that is inevitable in any society. The invention of computers, supercomputers, and information
technology are excellent examples of the adaptability that is essential. Whether the market structure is
perfect competition, monopolistic competition, oligopoly, or pure monopoly, each has its own
characteristics and specifications.
Perfect Competition
One of the main tenets that make a market economy work is the theory of supply and demand.
Generally, without any outside forces acting upon it, this is an inverse relationship. As supply goes up,
demand goes down. As supply becomes scarcer, the demand will increase. Supply and demand is
important for many of the market structures, but none more so than perfect competition. In this type of
market structure, the price of a homogenous good is determined by supply and demand as opposed to
other market forces such as competition or superior products. It is important to note that in a perfect
MARKET STRUCTURE ANALYSIS 4
competition market structure there are several facets that must be present for it to be designated as such.
Perfect competition markets are made up of many sellers and buyers who have no restriction on entering
or exiting the market. As mentioned earlier, the ease of entry and exit from the market is part of the
definition of supply and demand. In addition to the number of competitors in a market and the ease with
which they can stay or go, all of the products within the market are homogenous. This simply means that
they are all of sufficient similarity that they cannot be easily differentiated from one another. Routledge
Dictionary of Economics (2013) defines a homogeneous good as one “whose units are regarded as
identical by consumers” (Rutherford). This is important because there is no differentiation between
sellers or buyers of the quality or effectiveness of the good – all of them are the same. Later structures
and the case study will exemplify the differences between products sold and bought within the same
market. One final condition that all perfect competition market structures have is that each seller within
the market takes the price given and cannot affect the overall price paid by the buyer. They are price
