Microeconomics

Market Structure Analysis Project

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See attached pdf file. All instructions must be followed and peper must be turned in on time. In case you cannot access the pdf, here is the assignment. It is due by Wednesday.

Purpose

 

 

: To apply the characteristics of market structures to assess a real-world market.

Content

 

 

: You will observe a market and write a short paper (approximately 3 pages) or

create a presentation (using power-point or any other media that can be easily accessed) to

 

describe the characteristics of the market for a particular good or service and evaluate its

 

structure.

 

You are welcome to work with a partner on the project.

 

 

Due Date:

 

 

November 14

Other important requirements:

 

 

 

You must follow the format describe below. I strongly recommend using headings to

make the structure of your paper clear.

 

 

 

Sources: this is not a research paper. Do not spend more than an hour or two to

acquire the information. You must cite the source of any information or claims you

 

make- even if it is based on interviews or your own observations – using footnotes (if

 

you use video, you can turn in a sheet with statements and cites).

 

 

REQUIRED FORMAT

 

 

 

The paper/presentation must discuss the topics described below. I strongly suggest you

 

organize your paper with this as an outline.

 

 

A. Briefly define the market and state its structure. (1 paragraph)

 

 

 

 

Define the product. How broad is the relevant definition of the good or service?

(For example, is your product shoes or just sport shoes; computers or just laptops;

 

financial investment services or mutual funds)

 

 

Tips:

 

 

 

 

 

 

use a product NOT a single brand (Soda, not Coke; motorcycles; not Harleys)

also, do not select out a few producers.

 

 

 

 

 

There is no reason to discuss the “importance” or history or go into minute

descriptions of the product or list the producers or brands.

 

 

 

 

Define the scope of the market? your neighborhood, your town, the region? The

scope of the market is the scope of BOTH buyers and sellers.

 

 

Example

 

 

: the market for hamburgers or hot coffee drinks would be quite local

(consumers do not even drive to San Diego for a hamburger or coffee) even though

 

but the market for something you buy on-line (e.g. books) might be national.

 

 

Tips:

 

 

 

 

Almost NO consumer goods markets are world in scope. Think of where a

 

consumer would look to buy the good.

 

 

 

B. Concentration: number and market shares

 

 

 

 

 

In this section, described the level of concentration and whether some producers

have particularly large shares relative to others. If you can get market share

 

information through a simple online search, or by observing retailers, try to

 

approximate the 4-firm or 10-firm concentration ratio in the market.

 

 

Tips:

 

 

 

 

 

 

A simple google search can usually uncover market share information if it is

available. Try

 

market shareand the name of the product and/or one of the known

producers. You can also estimate concentration by asking retailers or even by

 

observing shelf space devoted to the product.

 

 

 

 

Tips:

 

There is no need to list or even name producers or brand names of products.

 

Find the # of producers, not brands. One firm may produce several brands.

 

DO NOT use the word “dominateor controlwhen describing market share.

Just state, for example, that producers have certain shares of market sales.

 

 

C. Barriers to entry:

 

 

 

 

Investigate whether new companies have entered the market lately. Look for

brand loyalty, patents (that are a vital part of the product), heavy

 

advertising/marketing, or licenses. Consider the expense of capital goods, how

 

long it takes a company to set up production, whether start-up companies have

 

entered the market or only large, well established companies. Consider possible

 

returns to scale or scope that could be important. Are there retail barriers? Special

 

inputs? Franchises?

 

 

 

Explain why you think there is or is actually a barrier. Note that the simple

requirements of starting a business (financing set up of the firm; permits or

 

licenses that must be acquired are not barriers unless they are unusually large or

 

restricted)

 

Consider: Have companies entered lately?

 

 

Tips:

 

 

 

 

 

 

Advertising/marketing is not a barrier to entry.

 

 

Be careful about using the term brand loyalty correctly. If consumers actually

prefer a particular product to other products, it is not brand loyalty. Brand

 

loyalty exists only where consumers would not buy the same good if it were

 

produced by different firm.

 

 

 

 

Just having a patent does not create a barrier. Example: most toothpaste

companies have dozens of patents for all kinds of taste, texture, processing, etc.

 

But each company has very similar toothpaste and did not get any real advantage

 

from its patents.

 

 

D. Product Differentiation

 

 

 

In this section, you should describe:

 

 

 

How much product differentiation is there?

 

You do not need to go into detail about product differences or features, but you

should give the reader whether there are meaningful differences in the product

 

across or within producers.

 

 

 

Is it “real” in terms of real characteristics/features of the product; or is it simply in

the minds of the consumer? Did the imagined differences arise due to advertising or

 

other means?

 

 

Many people have done little taste tests or surveyed friends who use the product to try

 

to establish whether differences are real/imagined. (This can also be done to test for

 

brand loyalty. See above)

 

 

 

E. Strategies.

 

 

 

This section is optional. Simply describe strategies (as named in the readings or

 

lectures) that you think are being used by producers.

 

 

Examples

 

 

: price taking, price discrimination, product differentiation, market

segmentation, tit-for-tat, collusion (such as price leadership), or rivalry behavior.

 

 

Tips:

 

 

 

 

 

 

Do not make up strategies not discussed in class. Do not discuss individual

firms’ business tactics unless they really are a part of market strategies.

 

 

 

 

 

The same observed facts can suggest different strategies. For example, if the

products of different producers have the same price, this could be price taking or

 

a collusion strategy. Just make an educated guess. As long as your conclusions

 

make sense, they are valid.

 

 

 

Conclusion: Summarize your Evaluation of the structure of the market.

 

 

 

 

Using your descriptions of the characteristics, evaluate the structure of the market.

 

The structure may be a mixed form. For example, many markets have a few large

producers with very large market shares, but also have a number of small producers that

 

exist and may be attempting to overcome high entry barriers.

 

 

 

The market may also be in transition from one form to another. For example, a

monopolistically competitive market may be moving to an oligopolistic form through

 

mergers or the creation of entry barriers, or an oligopoly may be changing into a

 

monopolistically competitive form through entry of new producers.

 

 

Grading:

 

 

You will be graded on the coverage of the required topics, whether you use and

understand the economics terms that apply, whether the structure and strategies you identify

 

are consistent with the observed fact. If you present the material in an interesting and

insightful way, this will also be a plus.

 

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