How Markets Function
A critical part of examining the market for a product is the structure of competition—whether there are many or few sellers in the industry.The terms“many”and“few”are delineated not so much by the numbers of firms as by the competitive interaction among firms.
There are“many”sellers of a product when no one firm has a big enough volume of business or enjoys high enough standing as a market leader for the remaining firms to react to its actions.Each firm is small enough and insignificant enough in the context of the whole market that it is virtually an anonymous entity, hidden by sheer numbers from the watchful eyes of other firms. In contrast, we say there are“few”sellers of a product whenever the actions of any one firm will be noticed and reacted to by rival sellers.“Few”means few enough so that firms find it imperative to follow each other's moves closely.Fewness of sellers also means that each firm is large relative to the size of the market in which it operates;often, when firms are few in number each firm is large in absolute size as well. The single-firm industry, or monopoly, is the limiting case of fewness.
A second key element in market analysis relates to whether the products of sellers are identical or differentiated.The products of sellers may be considered to be identical whenever and wherever customers evidence no particular preference for one firm's product over that of another firm. This may arise because the item is produced by a process that confers certain measurable qualities which can be graded and which are unrelated to the seller producing it.For instance, choice-grade beef is choice-grade beef, and one cannot tell（nor does it really matter）whether it came from ranch A or ranch B. In such cases, the products of firms in an industry tend to be perfect substitutes; examples include cotton, sulfuric acid, natural gas, coal, cement, and coffee beans.
On the other hand, where the products of firms are distinctive and somewhat unique, they are not perfect substitutes for one another, and buyers may have good reason to prefer the product of one firm over that of another. However, the ultimate test of differentiation is in the mind of the buyer, and the perceived differences in the products of various firms may be either real or contrived.“Real”differences involving performance, materials, design, workmanship, and service are obviously important aspects of product differentiation.But“contrived”differences brought about by brand names, trademarks, packaging, and advertising can also be important to buyers; for example, even though all brands of aspirin are chemically alike, many buyers evidence preference for one brand over others.
In addition, it should be recognized that a firm's product extends beyond the physical and functional characteristics of the item itself. Although a large number of retailers in an area may sell Crest toothpaste, they may not be viewed as equally attractive to buyers of Crest.The sales clerks in one store may be more courteous, or its location more convenient, or its checkout system faster, or its delivery service more dependable, or its credit terms more accommodating.Such factors can cause buyers to prefer one seller over another, even though the item purchased is the same.The various brands of shoes, wines, cereal, cosmetics, tires, and soft drinks are all examples of differentiated products.
As might be expected, competition proceeds along different lines, depending on whether there are“many”or“few”firms and whether their products are identical or differentiated.Viewed from this perspective, four main forms of market structure and organization stand out：
1.Perfect competition—many sellers of a standardized product.
2.Monopolistic competition—many sellers of a differentiated product.
3.Oligopoly—few sellers of either a standardized or a differentiated product.
4.Monopoly—a single seller of a product for which there is no close substitute.
Arthur A.Thompson Jr.and John P.Formby, Economics of the Firm:Theory and Practice 6th ed.© 1993, pp.265-266.Reprinted by permission of Prentice-Hall, Englewood Cliffs, New Jersey.
KeyTerms and Concepts
choice-grade beef quality measure of beef packaged and sold at different prices.
perfect substitution refers to the products in very much similar qualities that a consumer would just as soon have one as the other.
Crest a brand name of toothpaste.
checkout system a system in store or supermarket to generate bills of payments for customers and complete the transaction with customers, usually automated in U.S.
credit terms period of late payment to be offered by a seller.
Suggestions for Further Study
When a student starts to learn specialized English, the way he learns becomes very important.Before a student makes great progress in learning English, he first has to recognize the problems associated with learning the language.
Recalling previous English classes in middle schools or universities, one can easily find systematic loopholes.Those loopholes are as follows:First, the whole system of teaching and learning English is scheduled to be examination-oriented.Students have to spend a lot of time dealing with endless examinations.Second, students often think that vocabulary is the only obstacle in their study, therefore, they spend most of their time memorizing new words.They habitually hesitate on every new word and stop at every new word when reading.Third, the“step by step”pedagogy discourages students from more extensive reading.Other than the required textbooks, most students do not read much each year.Moreover, the textbooks students read are very thin.As a result of this, students do not learn much English even after completing eight or ten years of English classes.Fourth, problems can also be found in the standards applied to assess a student's English.At universities, many students recognize over six thousand English words and have high qualification scores but cannot express themselves clearly.More specifically, they cannot speak fluently or write well.
The systematic loopholes listed here remind people to look for better ways to learn English.The loopholes also remind people to set more realistic standards to evaluate a student's English.
To improve a student's English, there are no methods better than reading novels or English textbooks used at universities abroad.To learn a language, reading is always most important.From certain points of view, one should learn English the same way that he learns Chinese.
To assess a student's English practically, people should adopt a more meaningful rule which says that when the process of translation disappears in a student's mind, his English is fine.
Key Words Loophole