Market Structures Industries Can Be Classified Under Differe

Market Structures Industries can be classified under different market

Industries can be classified under different market structures and this classification strongly dictates decisions made by managers within the market. For example, in an industry classified under perfect competition, or in a perfectly competitive market, many competitors offer the same product and entry into the industry is easy. In this market, the pressure to maintain the same prices as the competitors is high, which characterizes this market. On the other extreme, some industries are classified as monopolies and some fall under monopolistic competition. In a monopoly, there is only one provider of a product or a service, which has an inelastic demand.

In this case, there is little incentive for the monopoly to be efficient or price competitive. In a monopolistically competitive market, there are many firms selling a product or service that is only slightly differentiated from one another, and in the long term, these firms start showing characteristics of a perfectly competitive market. Tasks: Find an article about an industry in the United States, such as the pharmaceutical industry. You can consult sources such as the Wall Street Journal, Financial Times, Bloomberg Markets, the Economist, US News and World Report, and other publications for your reference. After reading the article, respond to the following: ï‚· Identify the market structure that best characterizes the industry described in the article. ï‚· Explain the factors you considered when identifying the market structure for this industry. ï‚· Analyze whether this industry will work better if it changes its market strategy and starts showing characteristics of another market structure. ï‚· Critically analyze the advantages and disadvantages of the market structures that you studied in the readings. ï‚· Support your assumptions with reputable source material. ï‚· While responding, focus on market structures for the selected industries as well as analyses of advantages and disadvantages of other market structures. Write your response minimal 500 words. Your response should be thorough and address all components of the discussion question in detail, include citations of all sources, where needed, according to the APA Style, and demonstrate accurate spelling, grammar, and punctuation

Paper For Above instruction

The analysis of industry market structures requires a comprehensive understanding of economic characteristics that define each type of market. In considering the U.S. pharmaceutical industry, recent literature and industry reports suggest that it exhibits characteristics primarily of an oligopoly, with elements of monopolistic competition. This classification arises from the limited number of dominant firms, substantial barriers to entry, product differentiation, and strategic behavior among the key players.

The pharmaceutical industry in the United States is characterized by a small number of large firms, such as Pfizer, Johnson & Johnson, and Merck, which control a significant market share. These firms invest heavily in research and development, creating differentiated products that target specific health conditions. The entry barriers include high research costs, regulatory approvals, and patent protections, which inhibit new competitors from easily entering the market (Kesselheim et al., 2016). This concentration suggests an oligopolistic market structure, where strategic interactions between dominant firms influence prices, innovation, and market entry.

Factors considered in identifying this market structure include the degree of product differentiation, market concentration ratios, barriers to entry, and the strategic behavior of firms. The substantial research investments and patent protections serve as barriers, while differentiated products like blockbuster drugs indicate monopolistic tendencies within the structure. The strategic interactions, evident in pricing, marketing, and patent litigation, further support the oligopoly classification (Scherer & Ross, 1990).

Contemplating whether the industry would benefit from shifting towards a different market structure, such as perfect competition, reveals significant drawbacks. Perfect competition necessitates a large number of small firms, homogenous products, and easy entry and exit, none of which align with the current industry realities. Transitioning to perfect competition would diminish incentives for innovation due to reduced profits, threaten the sustainability of ongoing research, and potentially lead to a decline in drug development (Grabowski & Thomas, 2018). Conversely, adopting strategies to foster more competitive behaviors within the oligopoly could stimulate innovation and lower prices, benefiting consumers without risking the industry’s investment-heavy model.

Examining the advantages and disadvantages of market structures from the literature underscores that oligopolies can promote innovation through substantial R&D investments, but may also lead to monopolistic prices and reduced consumer choice. In contrast, perfect competition offers consumer benefits through lower prices and diverse options but discourages significant investment in R&D, essential for pharmaceutical advancements (Carlton & Perloff, 2015). Monopolistic competition can strike a balance but is less representative of the pharmaceutical industry’s current configuration due to the high barriers and strategic behaviors inherent in this sector.

In conclusion, the U.S. pharmaceutical industry primarily exhibits an oligopolistic market structure, driven by high barriers to entry, product differentiation, and strategic firm interactions. While shifting towards more competitive market characteristics could benefit consumer welfare, the industry's reliance on extensive R&D necessitates an oligopolistic framework to sustain innovation. Policymakers need to balance encouraging competition with protecting the incentives necessary for pharmaceutical innovation, ensuring both progress and affordability (Danzon & Towse, 2019).

References

• Carlton, D. W., & Perloff, J. M. (2015). Modern Industrial Organization (4th ed.). Pearson.
• Danzon, P., & Towse, A. (2019). Pharmaceutical innovation and public policy. Journal of Economic Perspectives, 33(4), 125-148.
• Grabowski, H. G., & Thomas, N. (2018). The Economics of Pharmaceutical Innovation. Journal of Economic Perspectives, 32(3), 119–142.
• Kesselheim, A. S., Avorn, J., & Sarpatwari, A. (2016). The high cost of prescription drugs in the United States: origins and prospects for reform. Journal of the American Medical Association, 316(8), 858–871.
• Scherer, F. M., & Ross, D. (1990). Industrial Market Structure and Economic Performance. Houghton Mifflin.