Market Structures: Competitive, Monopoly, and Antitrust Analysis

This assignment analyzes market structures, specifically focusing on perfectly competitive and monopoly markets. It explores the differences between the demand curves faced by firms in these markets, explaining why a firm in a perfectly competitive market faces a horizontal demand curve while the market faces a downward sloping demand curve. The assignment then delves into the profit maximization conditions for both market structures, highlighting how monopolies set prices above marginal cost, leading to inefficiencies. It utilizes the Herfindahl-Hirschman Index (HHI) to assess market concentration in the soft-drink industry and evaluates the potential merger of Coca-Cola and Pepsi-Co based on antitrust laws and merger guidelines, considering barriers to entry. The student provides graphical representations of the firm and market demand curves. The assignment covers topics such as market concentration, competitiveness, and the role of regulatory bodies like the Department of Justice (DoJ) and the Federal Trade Commission (FTC) in preventing monopolies.

Running head: MARKET STRUCTURE
Market Structure
Name of the Student
Name of the University
Student ID

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Table of Contents
Answer 1..........................................................................................................................................2
Answer 2..........................................................................................................................................3
Answer 3..........................................................................................................................................4
Reference.........................................................................................................................................5

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Answer 1
In perfectly competitive structure, market demand curve is different from the demand
curve faced by a firm. An industry with competitive market structure follows the theory of
supply and demand that means price and demand is inversely proportional and hence with rise in
price demand in the market declines and vice versa (Koschker & Möst, 2016). Change in market
price means that all the firms has changed the price for some reason and owing to which
consumers change the demand in the opposite direction. However, a firm faces horizontal
demand curve because it cannot set price in a perfectly competitive market (Zeuthen, 2018). The
demand in a market does not get influenced by the price of a firm since if a firm lowers price
then the other firms would react and lower the price accordingly and thus there would be no
impact on the demand owing to variation in price of a single firm. The graphical representation
of the firm and market demand curve is given in figure 1 and figure 2.
Figure 1: Firm demand curve
Source: (Created by the Author)

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Figure 2: Market
demand
Source: (Created by the Author)
Answer 2
In perfect competition, maximization of profit is done by equating marginal revenue
(MR) and marginal cost (MC) and from the point price is drawn. It means that MR=MC=P in
perfect competition. However, in case of monopoly profit is maximized at the output where
MR=MC but price is greater than MR=MC point. This price allows a firm under monopoly to
appropriate more profit. The difference is due to the shape of demand curve (Mendez et al.,
2018). From the figure, 3 it can be said that due to this profit maximization condition in
monopoly inefficiency occurs as quantity traded under monopoly is much lower than perfectly
competitive market. In addition to that, in the monopoly market there is surplus loss as
deadweight loss. In the case of perfect competition, these are not present and thus it can be
inferred that monopoly market is inefficient whereas perfect competition is not.

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Answer 3
(a) The market concentration of the industry can be found by the calculation of Herfindahl-
Hirschman Index (HHI). Therefore, the HHI of given market is
HHI =(CocaCola)2 +(Pepsi−Co)2 +(Cadbury Schweppers)2 +(Other)2
¿ , HHI =(37)2 +(35)2+(17)2+(11)2
¿ , HHI=1369+1225+289+121
¿ , HHI=3004
In is found that the HHI of the industry is 3004, which indicates the market concentration
is high. Thus, it can be inferred that the competitiveness the industry is low and thus the market
is of oligopoly structure. However, if merger occurs between Coca Cola and Pepsis-Co then the
merger will be found to be highly concentrated since HHI of the two exceeds 2500.
(b) To approve the mergers, the Department of Justice (DoJ) and the Federal Trade Commission
(FTC) needs to review the details of the merger that is going to take place. Considering the
concentration of the first three and the economic impact, the merger of Coca Cola and Pepsi-Co
would not be approved by the DoJ and the FTC since merger would increase the concentration of
the market further and eliminate the existing competitiveness (Baker, Sallet & Scott Morton,
2017). Apart from this, existing of anti-trust laws that restrict cartel and competition the merger
would not be approved.
(c) Yes, there are barriers to entry in the concerned market. The barriers that exist in the market
are large fixed cost and large economics scale associated with the existing firms that gives low

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cost structure to the firms. Hence, any new firm that tries to enter the industry would face these
barriers.

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Reference
Baker, J. B., Sallet, J., & Scott Morton, F. (2017). Unlocking antitrust enforcement. Yale
LJ, 127, 1916.
Koschker, S., & Möst, D. (2016). Perfect competition vs. strategic behaviour models to derive
electricity prices and the influence of renewables on market power. OR spectrum, 38(3),
661-686.
Mendez, C., Padala, H. S., Steine-Hanson, Z., Hilderbrand, C., Horvath, A., Hill, C., & Burnett,
M. (2018). Open source barriers to entry, revisited: A sociotechnical perspective.
In Proceedings of the 40th International Conference on Software Engineering (pp. 1004-
1015).
Zeuthen, F. (2018). Problems of monopoly and economic warfare. Routledge.