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This is a solution of Economic Market Structure Assignment Help in which we discuss Oligopoly market and Monopolistic strategy assure maximized profits of organization in future
The current study identifies the market structure and determines the expenditure on the product differentiation that provides the ability to the firm to maximise the profits of the organization in future. The report also explains the differences in the wage rate of the employees according to the individual and occupations and the designation. Various businesses pay different wages to the employees according to the capability of the employee. The study also discusses the factors that affect the wage of the employees. Some factors influence the worker to work in the organization whereas some reasons de-motivate the work in the organization this all factors are discussed in the study.
Question1.In any market structure, an appropriate once-off expenditure on product differentiation will guarantee the firm’s ability to maximise economic profit into the future. Discuss.
Product differentiation is basically a marketing strategy. It is used by the firms to distinguish its product in the market structure by conquering the larger segment of the consumers. Differentiation makes the product more attractive and interesting by providing complementary unique qualities as compared to other competing products. Basically product differentiation provides a competitive advantage to a vendor. The firms using the differentiation strategy targets their potential customers and makes them recognize that the product offered by them is positively different from those of all similar products in the market (De Loecker, 2011). Product developmentby the firms in following ways in order to gain maximum profits in future:
- Differentiation by Style or Type: Firms can bring differentiation by introducing the difference in the function and form of products.
- Differentiation by Location: Firms can make its product difference from those of others by simply capturing the portion of the market through strategically locating its products in the market.
- Differentiation by quality: In this type, product can be differentiated in the market by improving or enhancing the quality of offered product from those of other competitive products (Hoberg and Phillips, 2010).
Market structure in economics is the number of firms who produces matching products which are of homogeneous in nature. The market structure is of four type i.e. perfect competition, monopolistic competition, oligopoly and monopoly.
Table 1: Market structure
Number of sellers
Type of product
Similar but differentiated
Standardized for industry and differentiated for customers
Standardized but no close substitutes
Monopolistic Competition: This type of market describes a common market structure. There is a lot of competition in monopolistic completion. Every seller sells its products by introducing a slight difference in their product as compared to another competitive product (Nikaido, 2015). In this market, firms cannot survive unless it is having a slight difference among the products offered by the firms in the industry. For this purpose they pay a more attention towards the product differentiation tool. In monopolistic competition, firms achieve profits by having a once-off expenditure on product differentiation. Firms’ makes expenditure on making the product different by spending costs on products size, design, colour, features and performance. They gain advantage of product differentiation by advertising their unique product in the market. They advertise using the local sources such as local press, radio, posters and leaflets and inform their customers about their differences (Zhelobodko.et.al, 2012). The monopolistically competitive firms are the profit maxi misers because they through their once-off expenditure on product differentiation make assured to gain the economic profit in the future. This is so achieved by their entrepreneurs who actively engage in controlling the business effectively.
Figure1: Economic Profits in Monopolistic Competition
- Monopoly market: In monopoly market, the supplier of a products and services has an exclusive control over a market. This is so because there is no substitute of such product and services exist in the market (Von Stackelberg, 2010). Therefore, no competition exists in this type of market and prices are determined by the monopolist itself. Hence, once-off expenditure on product differentiation in this market will of no use because no such substitutes are present in the market.
- Oligopoly market: The firms in oligopoly makes standardized products as well as differentiated products. Product differentiation is not compulsory for the survival of oligopoly. However, if the firm is engage in the product differentiation by having a once-off expenditure on it can gain easily market shares and dominate at least a segment of an industry (Berry and Haile, 2010).
Figure 2: Economic profits of Oligopoly using the product differentiation strategy
Through this, it ensures that a firm will maximize its economic profit in the future. The best example of it is the soft drink industry in US which is an oligopoly and the Coca-Cola Company is dominating over there by making differentiation in their products in form of taste and design and hence, gaining market power.
Figure 3: Advertising about its product differentiation
(Source: Advertisement on product differentiation of Coca-Cola, 2016)
Perfect competition: In this market, products are ideal substitutes for each other. Therefore, firms do not make use of product differentiation strategy in perfect competition market. Hence, the once-off expenditure on product differentiation will not be useful for firms in perfect competition for achieving maximum profits in future (Allen.et.al, 2011).
Therefore, the once-off expenditure on product differentiation would be beneficial for the firms operating in monopolistic competition and oligopoly type of market structures. They maximize their profit in long run by maximizing the gap between the total revenue and total costs, i.e.
Profit = Total Revenue – Total Costs
For attaining the maximum profits in long run, firms in monopolistic competition and oligopoly market structures produces output where the Marginal revenue (MR) is equal to the Marginal cost (MC), in spite of of market structure in which the firm operates.
Output = Marginal Revenue = Marginal Cost
Question 2 Variation of wage rate according to industry and designation
The wage paid to the workers varies according to the designation and industry in which the worker. There are various differential factors affects the wages of the employees. These wages differentials are mostly the result of differences in worker skills and the dedication of the worker to perform the job. There are also wage differentials across the occupations, because of differences in demand and supply of labours for the particular job or business. This kind of differences arises firstly due to differences in the qualification or training required and in the interest to perform the job. Most of the government has implemented the minimum wage act that says every employer must pay minimum wage to the employee by which he or she meet his daily needs. This kind of act helps the unskilled employee to get the money to earn living (Dustmann and Glitz, 2015). Many times this act neglected by various people but due to interference of government it is being regulated. Many of the employees get the benefit from the minimum wage are often people does not want to regulate their own living but they need to take care of their children at their home. The trade unions also affect the wage rate as it is the union which negotiates the wage rate with the employers
Figure4: Variation in Wage Rates
Various factors affect wages of the employees like qualification of the employee, turnover/productivity of the organization, occupational wage differentials etc. The following are the reasons that affect the wages of the employees:
Occupational wage difference:Many times occupation pays more than the others organization. A doctor earns more than the teacher because of the business marketing management. These wage differentials are the result of educational and training requirement that is referred to as the human capital. Doctor needs more than a decade of education and training in the high school in comparison of teachers. Different occupation pays different money that only depends on the qualification of the employee. Qualification and guidance binds the supply of labour in that they take a certain amount of time to achieve and require some level of qualification (Gittleman and Pierce, 2015). In many cases, people that focus college of training school do not have time to do work for the full time.
Compensating Differentials:Some jobs pay more because employees are less interested. Most retail jobs where nonmonetary differences between jobs where higher or lower wages it depends on the interest of the employees. Most of retail jobs take place in air-conditioned or warm stores where the worker can wear pleasant clothing, stay clean, engage in friendly discussion with customers and spend little physical attempt. To attract the more workers organization pays more and gives bonus to attract the employees (Gittleman and Kleiner, 2015). In many cases employee’s employee is not able to bargain for the salary and bind to in low salary.
Wage Discrepancy Due to productivity of the organisation:The productivity of the organisation plays an important role in determining the wages. If the productivity of the organisation is high then the organisation will have higher revenue generation. This would lead to higher wages for the employees. On the other hand if the organisation is not generating enough revenues or is running into loses than the wage rate could be low (Haq.et.al.2012).
Wage Differentials Due To Market Imperfections:There is a presumption that people will transfer to high paying jobs from lesser paying jobs of the same type and with the same requirement. This kind of things happens if people may know about the jobs. Many people get jobs from their friends and associates that live in the same area. Sometimes lack of information can lead to constant differences in wage degree of difference for the similar type of job.
Performance: One of the major factors that affects wage rate of the employee is the performance of the employee. Many employer compares the performance of the employee than decide the wage rate of the employee. Performance is also used to motivate the employee to work and it also influence the employee to work better in order to get the good salary. Production units pay more salary to the workers in order to increase the productivity of the employees. High wage rates motivate the employees in order to achieve the task on time and get the work done assigned by the high authority. Many occupations pay commission to the employees in order to get the work done on time. To increase the performance of the employees many organization pay the bonuses in order to improve the productivity of organization as well. If the efficiency of the employee is higher than the wage rate than employer has to pay according to the capability of the employee. Many times management pay higher wages to the employees in order to attract the skilled employees. Many occupations pay the wage rate that suits with the performance of the employee (Shields.et.al.2015). On the other hand industries pay the fixed wages to all the employees if they perform well then they are rewarded with the bonuses.
From the above assessment it is observed that the firms operating in monopolistic competition and oligopoly market structures can assure maximized profits in future by having once-off expenditure in product differentiation strategy. The advantages of product differentiation are achieved on the basis of market structure in which firms are operating. Firms operating in perfect competition and monopoly market structure do not get advantages of product differentiation in future. In second task it is observed that the variation are there in wage rates of individual across the industries and occupation due to factors like wage discrepancy due to locality, wage differentials due to marketing management imperfections and pay according to performances.
Books and Journals
Allen, F., Carletti, E. and Marquez, R., 2011. Credit market competition and capital regulation. Review of Financial Studies, 24(4), pp.983-1018.
Berry, S.T. and Haile, P.A., 2010. Identification in differentiated products markets using market level data (No. w15641). National Bureau of Economic Research.
De Loecker, J., 2011. Product differentiation, multiproduct firms, and estimating the impact of trade liberalization on productivity. Econometrica,79(5), pp.1407-1451.
Dustmann, C. and Glitz, A., 2015. How do industries and firms respond to changes in local labor supply?. Journal of Labor Economics, 33(3 Part 1), pp.711-750.
Gittleman, M. and Kleiner, M.M., 2015. Wage Effects of Unionization and Occupational Licensing Coverage in the United States. ILR Review, p.0019793915601632.
Gittleman, M. and Pierce, B., 2015. Pay for performance and compensation inequality: Evidence from the ECEC. ILR Review, 68(1), pp.28-52.
Haq, M.A.U., Nawaz, M.A., Mahtab, N. and Cheema, A.K.H., 2012. Determinants of Wage Growth: An Empirical Analysis of Private Formal Sector in Bahawalpur Division. Business and Economic Research, 2(1).
Hoberg, G. and Phillips, G.M., 2010. Text-based network industries and endogenous product differentiation (No. w15991). National Bureau of Economic Research.Nikaido, H., 2015. Monopolistic Competition and Effective Demand.(PSME-6). Princeton University
Shields, J., Brown, M., Kaine, S., Dolle-Samuel, C., North-Samardzic, A., McLean, P., Johns, R., Robinson, J., O'Leary, P. and Plimmer, G., 2015.Managing Employee Performance & Reward: Concepts, Practices, Strategies. Cambridge University Press.
Von Stackelberg, H., 2010. Market structure and equilibrium. Springer Science & Business Media.
Zhelobodko, E., Kokovin, S., Parenti, M. and Thisse, J.F., 2012. Monopolistic competition: Beyond the constant elasticity of substitution.Econometrica, 80(6), pp.2765-2784