The impotance of market structure to a firm Essay

The impotance of market structure to a firm - Essay Example It is likely that all the small firms have similar costs of production and this is shown in the cost curve named as ATCo. It is a natural process for one of them to become larger than others, and then it can produce items at a cost lower than others and then the cost curve for it may change to ATC'. This permits the larger firm to sell its products at a lower cost than others, and this hurts the other firms which are smaller as they incur losses at that price. It is not only development of production capacities that leads to this situation, and this concept of "natural monopoly" was first used to explain the development of the telephone industry in United States. (Microeconomics: Chapter 11) The situation in the early years was that most cities had more than one Telephone Company to provide telephone services. This was not an efficient operation as it required subscribers to contribute to the services of more than one company for getting a call through as the companies were not interconnected. Due to the fact that it was one of the first to start, Bell was larger than other companies. Since the cost of providing services to additional customers was relatively small, it was able to provide services to new customers at lower costs than others. ... The situation changed only at the end of the 20th century when the government decided to break up the company. This was believed to be a result of technological developments. (Microeconomics: Chapter 11) There are also other reasons for development of monopolies, and it happens in New Mexico due to the ownership of most known sources of desiccant clay by a single family. Even in the personal desktop industry, there are monopolies due to ownerships of software and chip technology. Monopoly also takes place due to high costs of investments for entering an industry and these come in various forms - high advertising costs for establishment of brand names, special purpose machinery needed for production, establishment of stocks at different levels for being able to make the goods available in the market, and so on. Patents and licenses are also methods of prevention of entry for new organizations, though there is justification for the provision of patents to ensure a return for research. At the same time, this permitted Polaroid to hold on to its business of instant film for a long time. (Microeconomics: Chapter 11) In UK, the distribution of industry was to a large extent controlled by the government and its public sector which changed through the privatization program that began in 1979. The first phase continued till 1983 and during this period, the government sold shares of organizations that were small in size and operating in competitive markets. The value received for the shares was more than the value of property sold, and at the same time, it reduced competition. There were some sales that did not affect competition, like the sales of more than one million publicly owned housing which gave the government a value of more than 15 billion pounds. The second phase