Understanding Competition And Consumer Behavior ...

The connection between characteristics of a market, such as the number and strength of buyers and sellers, severity of complicity amid them, as well as the levels of competition and contrast of product and ease of entry and exit barriers determines the type of market structure. Perfect competition, monopoly, oligopoly and monopolistic competition are four basic market structures. Economists watch the different market structures in an attempt to predict consumer behavior. â€Å"Firms use markets to achieve sales and profit goals while consumers use markets to reach various consumption goals† (Redmond, 2013, pg. 433). Evaluating each structure will help in assisting firms with decision making to better understand competition and consumer†¦show more content†¦Prices are determined by supply and demand giving no control to the producers or consumers. Since there is nothing a single business can do to affect the market, firms are free to make decisions without worryin g about how competition will react. Barriers to entry are very low giving easy access to enter and exit the industry. When there are no barriers to enter the market it makes it impossible for a monopoly to develop. Considering the ease of entry and exit in this market, it is easy for new entrepreneurs to start a business and set up shop. No individual firm has the ability to control price. There is no control because each firm is so small and everyone else sells exactly the same product. There are countless firms in this industry with lots of consumers so the price is determined collectively by the market supply and market demand. This, then, is the prevailing price for each firm. If a firm does not like this price and tries to change it, it will lose customers because they will go where they can get the product cheaper which will then force the firm to back down. If a firm tries to lower the price below the demand curve, this will draw all consumers to that firm and one single firm is too small to accommodate all consumers for the entire industry. This would force the firm to back down to the prevailing price of all firms to get rid of customers. All of this means that firms