market power and the herfindahl hirschman index discussion question

This unit is focused on the different environments in which companies operate and the market power related to each of these environments.

The environment in which a company operates is referred to as a market structure. There are four primary structures: perfect competition; monopolistic competition; oligopoly; and, monopoly. A perfection competition has no market power to influence pricing while a monopoly has market power because it can set prices and in turn increase profits. The other two structures vary in degrees of market power based on strategies they implement.

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You have learned about the different market structures some are viewed as being at the opposite ends of the spectrum: Perfect Competition where there are many sellers who are price takers, Monopolies where one single company produces a product with no close substitute products and sets the market price, and Monopolistic Competition where several small companies have some market power by producing differentiated products.

The level, or degree, of a company’s market power is directly related to the principle of barriers into the market. Barriers are defined as any structural, legal, or regulatory characteristics of the company and the market structure that prevent other companies from producing comparable products at the same costs. Firms with market power will use several strategies to create these barriers: pricing; cost reduction; and, new product development.

Select one of the major market structures outlined in the textbook, and then identify two existing companies that you believe represent this structure and explain why. Using the Herfindahl-Hirschman Index of the textbook/or outside research identify the market power of at least two companies.

Minimum 250 words and cite any sources used. Refer to attached PDF of the textbook for reference.