Answer to Question #119644 in Economics of Enterprise for Vedansh

Question

What kind of market structure lux is operating within? Compare and contrast it with other market structures you have studied based on price,output and profit. Be sure to include graphs in your discussion.

Answer 1

Similarities between oligopoly and perfect competition market structures.

1. Both operate in markets with imperfect competition.
2. Both have downward sloping demand curves due to price elasticity and substitution alternatives.

Differences between oligopoly and perfect competition market structures.

1. Whereas in oligopoly market structure they have some level of control of prices of products in the market, in the perfect competition market, all firms in the market are price takers which means they cannot control market price of their products.
2. Whereas in oligopoly market structure prices are usually higher than they would be in perfect competition because there is no dominance force in the market.
3. Whereas in perfect competition firms aim at maximizing profits while minimizing costs, in oligopoly market structure focuses on other objectives a part from maximizing profits.
4. Whereas in oligopoly there is barriers to entry into the market while in perfect competition there is free entry into the market.