For your third assignment, you are asked to pick a product and describe its market structure. You may remember from class that there is a spectrum of markets, with perfect competition on one side and monopoly on the other. In class I also described characteristics which cause a market to fall into one of these categories. If you think it might fall in the middle, such as monopolistic competition or oligopoly, you may have to look up some things about that market. Try searching market structures as a starting point. For instance, I might choose a product or company, let's say, AT&T home internet. I then want to argue why this company faces a certain type of market, appealing to the characteristics from class and what I know about Perf. Comp. firms and Monopolies. I might argue that cable companies face One seller - In some places, it might be your only option. In other places, AT&T competes locally with Spectrum and a few other providers, but not many. Different Products - Not especially, home internet companies provide a pretty similar product. Full info but High Shopping costs - A technician has to come check your home out for service or lay their own cable wires even if you already have another internet provider High barriers to entry - initially they have to lay all the internet cable, very expensive (your textbook lists several barriers to entry in chapter 10) I also might argue that AT&T profits do not seem to be declining with time and that they seem to be a price maker. Looking at all these characteristics, I'd conclude that even though AT&T doesn't provide a very unique product, the high fixed costs (barriers to entry) and the shopping costs involved still lead to this market functioning as a monopoly, which is verified by what we know about profits and prices for that type of firm. In areas where there are multiple internet companies to choose from, maybe we would call it an oligopoly for many of the same reasons, just with a few sellers. This is just a rough outline of what I might say, please type it out in sentences and paragraphs and explain why you think you are right about your arguments as you see in the model response. You may argue that your firm faces any of the four market types, or represents a mix. The key here is to think about what makes a market act in a certain way, what the results of a market type are, and how that translates to the real world. This assignment should take you no more than two pages, double spaced (unless you get excited about it), though you could probably do it in one page. Have fun! Think about how firms position themselves to be as close to a monopoly as they can, since that is best for them. What can they do to reduce the perception of having competitors or close substitutes?20 pt. Model Response: My example of a good is Viagra. Viagra is made by Pfizer who holds a US patent until 2020 as the exclusive maker of the drug. This patent makes Pfizer the only seller, which is a characteristic of a monopoly. This also creates large barriers to entry, as Pfizer can sue if another firm enters the market or they can drop their price and try to undercut the new entrant until they no longer want to make a competing drug. While there are a few substitutes to Viagra, like buying it from Canada online or using another erectile dysfunction drug like Cialis, it remains a fairly unique product, which also seems to make it a monopoly. Finally, Pfizer was required to explain how they made the drug in their patent, so there is full information in this market. This doesn't necessarily line up with what we would expect from a monopoly, but the company chose to disclose this and get a patent protecting them for 20 years rather than risk another firm reverse engineering it in a shorter time if they tried to just keep it as a secret formula. Taking all these things into consideration, and looking at the long term, sustained profit that Viagra has created for Pfizer, I would conclude that this a monopoly is the best fit to describe this product. Chart to help you analyze the market: Consumers and procusers have perfect The conditions of a perfect competition co net follow knowledge about the market Each producer supplies a very small proportion of the total industry output Degrees of imperfection give rise to varying market structures Perfect Competition One Extreme of the market Large number of firms Monopolistic structure spectrum few barriers to exit or enter freedom of entry and ext. come element of central over price Characteristics arge number of fins can differentlace their products Characteristics products are identical consumer and producer knowledge is imperfect Firms have control over the price, they can change the ance of their product Pure Monopoly - only one Behaviors of firms affect what their rivals might do Characteristics producer exists in the industry Price may be stable across the industry rarely exists. alway's some form of substitute available Monopoly Potential for collusion Monopoly exists. where one firm dominates a market Oligopoly Goods can be the same or different Firms may be investigated when market shares exceeds 25%% Branding and Loyalty can be competitive advantages High barriers to enter Non-price competition to compete Market Structure Two firms in the industry Duopoly Strong control over the price Very strong barner to enter