Securities and Exchange Commission Market Structure

Question: Discuss about the Securities and Exchange Commission Market Structure. Answer: Introduction: Market structure is an important element in every market. It is the collection of factors that determine how buyers and sellers interact within a particular market. It is best defined as the organizational characteristics that make up a particular market which affects the nature of competition, changes in prices and how different levels of production interact. It also refers to the specific social organization that exists between buyers and sellers in a given market. Various elements that determine the type of market structure within a particular industry. This includes the degree of buyer concentration, the degree of seller concentration, the conditions of entry into that particular market and the degree of product differentiation. There are four major types of market structures in Australia, among them perfect competition, monopolies, oligopolies, and monopolistic competition. There are various characteristics that distinguish one market structure from the other (Market Structures 2016). For instance, the number of firms in the market will affect the firms strategy and ability to influence market prices. Additionally, the availability of similar and differentiated products affects the firms conduct. Specifically, an increase in the price of a product that has close substitutes will affect its sales (Market Structure n.d). The cost of information and barriers to entry are also major elements in market structure determination. Oligopoly Market Structure in Australia An oligopoly is a market dominated by few large firms. Often, key firms collude to create barriers that discourage the entry of new firms into that particular market. Typically, oligopolies aim at maximizing profits (Oligopoly 2016). As a result, they set their prices where the marginal cost equals marginal revenue. Furthermore, the barriers to entry are high. The most prominent barriers to entry include government licenses, patents, economies of scale, and other strategic actions by existing firms designed to discourage the entry of new firms. Also, oligopolies tend to compete on non-price factors. As such, they try to create brand loyalty and increase their sales through loyalty schemes, product differentiation, and advertisements (Khan 2016). A good example of the oligopoly market structure in Australia is the Beer industry. Although there are various manufacturers of beer in Australia the key players in the beer industry are Lion Nathan National Foods and SABMiller which together make up the largest portion of the Beer Industry. By 2014, the two firms controlled approximately 90 percent of the market. These two firms use their dominance to overcome the challenges in the beer market. They also capitalize on the new beer preferences by utilizing their market share to dominate the industry, making the other firms have an almost negligible market share. Moreover, the firms collude and put in place high entry barriers to discourage competition. Monopoly Market Structure A monopoly market structure in which a single firm which has exclusive control and high market power over a particular market. In this structure, the firm is the price setter and maximizes its profits at the point where marginal revenue equals the marginal cost. Often, the firms products have no close substitutes and therefore no competition from other firms. In addition, there are strict barriers to entry (Stigler n.d). Usually, a monopolist has total control over the price and the quality of its products. In case the firm intends to increase its prices, it reduces the amount of output produced. Similarly, it can reduce the price by increasing the amount of quantity of produced. In Australia, economic barriers are a major source of monopoly power. They entail factors such as economies of scale whereby monopolies experience decreasing costs for as quantity of production increases. They are able to reduce their prices below new entrants operating costs to prevent them from achieving profits. Likewise, capital requirements are a major economic barrier for new entrants as production often require large capital investments, research, and development. Such huge costs make it difficult for small companies to enter a market (Monopolies 2016). Technological superiority and control over natural resources may contribute to monopolies. Monopolies are often characterized by their notorious behavior of raising prices above the prices that would normally prevail in a competitive market structure. The Eastern State Gas Suppliers and Pipeline Operators are a perfect example of a monopoly in Australia. The firm raises gas prices over and beyond their operation costs. Gas supp liers have formed a cartel whereby they restrict output to increase prices. Monopolistic Competition in Australia Monopolistic competition is a market structure that combines aspects of perfect competition and monopoly. It is a type of imperfect competition characterized by freedom of entry and exit. Therefore, there are many sellers who produce differentiated products or services. As a result, firms face an inelastic demand curve and can influence their price and obtain supernormal profits in the short run. However, given that there is freedom of entry, the supernormal profits attract new firms who enter into the market. In the long run, the supernormal profits diminish, and firms earn only normal profits (Pettinger 2008). Often, these markets are regarded as productively and allocative inefficient. The coffee industry in Australia is a good example of monopolistic competition. Particularly, the industry is characterized by many firms that have a market share within the coffee industry (Monopolistic Competition n.d). Examples of coffee firms in this market are Most of the coffee firms offer differentiated products and therefore set their own prices with regard to quality. In addition, the Australian coffee market allows firms to make independent production decisions and each firm has some market power. As a result, individual firms can determine the prices of their products and risk losing only a small proportion of their customers. Conclusion The market structure is an important factor in any market as it determines the pattern in which the constituent parts of a particular market are arranged together. It determines the relationship between buyers and sellers, sellers and sellers. It also determines the degree of competition and the level of product differentiation (Levin 2009). It is worth to note that the Australian economy is made up of oligopolies, monopolies, and monopolistic competition. The structure of the market in Australia determines the degree to which the firm can change its prices without losing their loyal customers as well as how companies conduct their business. Reference List Ellickson B. Market Structure and Performance. 1st ed. [Pdf] University of Rochester, pp. 2-13. Available athttps://paulellickson.com/MarketStructure.pdf[Accessed 2 Dec. 2016]. https://www.khanacademy.org/economics-finance-domain/microeconomics/perfect-competition-topic/monopolistic-competition-oligop/v/oligopolies-and-monopolisitc-competition[Accessed 2 Dec. 2016]. Khan, S. (2016) Oligopolies and Monopolistic Competition [Online] Available from: Levin, J. (2009). Entry and Market Structure. 1st ed. [ebook] Stanford: Stanford Univeristy, pp.23-40. Available at: https://web.stanford.edu/~jdlevin/Econ%20257/Entry%20and%20Market%20Structure.pdf [Accessed 2 Dec. 2016]. Market Structure: Oligopoly (Imperfect Competition). (2016). 1st ed. [ebook] Missouri state: Missouri state, pp.2-16. Available at: https://courses.missouristate.edu/reedolsen/courses/eco165/Notes/oligopoly.pdf [Accessed 2 Dec. 2016]. Pettinger, T. (n.d.). Monopolistic Competition. [Online] Economics Help. Available at: https://www.economicshelp.org/blog/311/markets/monopolistic-competition/ [Accessed 2 Dec. 2016]. Policonomics (2016), Market Structures [Online] Available from: https://www.policonomics.com/lp-market-structures-market-structure/ Stigler, M. (2016). Monopoly: The Concise Encyclopedia of Economics. [Online] Available at: https://www.econlib.org/library/Enc/Monopoly.html [Accessed 2 Dec. 2016]. US Securities and Exchange Commission Market Structure [Online] Available from: https://www.sec.gov/marketstructure/