Market Structures and Game Theory

This economics assignment delves into different market structures: perfect competition, monopolistic competition, oligopoly, and monopoly. It explains the characteristics of each structure and provides real-world examples. The assignment also explores game theory as a tool for analyzing strategic interactions in oligopolies and illustrates concepts like the kinked demand curve and price discrimination.

Running head: ECONOMICS ASSIGNMENT 1
Economics Assignment
(Author’s Name)
(Institutional Affiliation)

ECONOMICS ASSIGNMENT 2
1. An economy is characterized by various market structures, the four basic market
structures include perfect competition, monopolistic competition, oligopoly, and
monopoly. A perfect competition market structure consists of a large number of firms
competing. A single firm cannot control the whole market and has limited power in
terms of entry barriers. Also, all firms produce identical products. A monopolistic
competition also consists of a large number of firms competing against each other.
However, the firms in this market structure sell similar products but somewhat
differentiated. There is also free entry and exit to the market. An oligopoly is a market
structure that is controlled by a small number of firms meaning that it is a situation of
limited competition. The products produced may be identical or differentiated and there
exist barriers to entry in this market. A monopoly is a market structure where a single
dominant firm controls the entire market. In this scenario, the firm can set its prices and
control output because consumers don’t have much choice. Also, there are high barriers
to entry (Stiglitz, 1993).
2. “Game theory” is a study of determining logically the actions of participants in achieving
the best outcomes when faced with various alternatives. Game theory is common in an
oligopoly market structure (" The Concise Encyclopedia of Economics, 2017). In real
life, game theory can be applied when striking deals.
3. A kinked demand curve is a standard demand curve with a bend as a consequence of
competing firms in an oligopoly market structure (" kinked demand curve, 2017). For
example, ever wondered why most petrol stations charge more or less the price of fuel.
Competing firms cannot afford to increase their prices (Guru, 2017).

ECONOMICS ASSIGNMENT 3
Figure 1: Explaining the Kink in the demand curve.
4. Price discrimination is a pricing strategy that sells the same product to different
customers at different prices with the aim of improving revenues. There exists a number
of pricing strategies that firms use. Some include; incentive discounts, loyalty pricing,
and indirect segmentation.
5.
a. A Woolworth supermarket chain in your city is likely to be in an oligopoly market
structure since its in a major city.
b. A Woolworth supermarket in a small town is in a monopoly market structure because
isolated small towns may have a monopoly situation.
c. A small cafe in Melbourne/Sydney CBD is in a monopolistic competition market
because it is highly likely there are other small cafes, operating in the CBD on any given
day.

ECONOMICS ASSIGNMENT 4
d. Yarra Tram in Melbourne is in a monopoly situation because they operate large tram
networks.
e. Australia New Zealand Bank in an oligopoly market structure since it is one of the
largest global banks with a considerable market share in Australia, New Zealand, and
other countries.
f. Academies Australasia Polytechnic is a higher education institution which incorporates
elements of monopoly, oligopoly, and monopolistic competition.
g. A small store that sells souvenirs in your city’s Sunday market is in a perfect competition
market because there is a high chance there exists other small stores selling similar items.
h. I phone and Samsung in the smart phone industry which is an oligopoly market structure.
6. A monopolistic competitive market structure has differentiated products, the demand
curve is downward sloping and more elastic (Diagram B). Firms operating in this market
structure have less control on the prices and will depend on how unique its product is
compared to its competitors.On the other hand, oligopolies face a combination of both
curves, inelastic and elastic. This is because oligopolies monitor each others pricing
decisions. Increases in the price above the equilibrium will result in the more elastic demand
curve. On the flip side, a reduction in prices below the equilibrium, the demand curve will
be inelastic because other competitors will reduce their prices.

ECONOMICS ASSIGNMENT 5
References
Game Theory: The Concise Encyclopedia of Economics | Library of Economics and Liberty.
(2017). Econlib.org. Retrieved 4 October 2017, from
http://www.econlib.org/library/Enc/GameTheory.html
Guru, S. (2017). YourArticleLibrary.com: The Next Generation Library. Retrieved 4 October
2017, from http://www.yourarticlelibrary.com/oligopoly-market/the-kinked-demand-
curve-theory-of-oligopoly/37335/
Spacey, J. (2017). 10 Examples of Price Discrimination. Simplicable. Retrieved 4 October
2017, from https://simplicable.com/new/price-discrimination
Stiglitz, J. (1993). Economics. New York: Norton.