Organizations’ Behaviour in the Market Environment
Perfect competition in a market can be practically perceived when firms realize that they cannot have a remarkable effect on the market price on their own. The resultant outcome of a perfectly competitive market is that the marginal cost would be practically equal to that which the customers would be ready to pay. This can be a useful benchmark to evaluate other structures of the market. On the extreme side of a perfectly competitive market is marked by monopoly in which case there is only one producer for a certain market commodity. In such a scenario the lone producer’s actions can easily manipulate the direction that the market takes for he has the market power and the prices of the commodity he supplies shall in most cases be above the marginal cost.
In practice, the market could have other players between the perfect competition level and monopoly level. An example of this is the oligopoly market status in which case the market structure is characterized by a limited number of suppliers. Unlike in the case of monopoly, in oligopoly, the supplier is quite aware that any other competitor may respond differently to the market demands, output levels and product prices. Whereas each of the limited suppliers has substantial market powers, the imperfect state of the market allows the prices to settle at a lower level than in a perfectly competitive market but above the marginal costs. However, the prices may be higher in case collusion between the suppliers in the oligopolistic market occurs. In practice, the organizational framework that draws the competition patterns and dictates the market power balances is given by the paradigm of the general structure performance. This means that the frame structure which can be measured by available shares establishes the market performance that can be determined by profit margins.
Market structures determine the environment upon which a firm would function as well as the nature of the external factors that may influence the firm’s operations.
Given that the goal of the market structures is mainly to profit, the perfect competition scenario in which case the profit is minimal is not mainly common in practice. The practice to have structures in which the market power shall be in the hands of few operators so that the market manipulation can be possible is the most common scenario and as already discussed the producers of any market would always make efforts to collude and ensure that their market power is high and it is possible to force the prices higher than marginal costs.