Differentiating Between Market Structures

Differentiating Between Market Structures

ECO / 365

May 16, 2016

Differentiating Between Market Structures

The cell phone service provider industry market is best described as an oligopoly market.  There are several reasons why the cell phone service provider industry falls into the oligopoly market structure:  a small number of service providers, the dependence of the services providers on each other to set pricing and the effects of the pricing on the supply and demand curves. The effects of the supply and demand of the cell phone service provider’s services leading to price elasticity.  However, there is a fine line that they oligopoly market structure walks not to cross over into the monopoly market structure, which is watched of with regulations and antitrust laws.

Oligopoly Market Structure

 What does oligopoly market structure mean and how do cell phone service provider’s fall into this category, you may ask.  Although the cell phone service provider industry seems to run like a monopoly, where one company holds all of the stakes in the industry:  Cell phone service providers that rely on each other to set the standards for the market. The big names of cell phone service providers, AT&T, Verizon, Sprint, T-Mobile and then there are a few smaller ones like Cricket Wireless, U.S. Cellular, MetroPCS and many others, though the number of cell phone service providers in the United States is less than or right at 100 in order to fall into the oligopoly market structure.  The argument that the cell phone service provider industry falls into a perfect competition category does not fit because of the market structure. Consumers of the cell phone service industry may guide pricing, but consumer while having an effect on the pricing by changing service providers because of slick marketing campaigns forcing other service providers to adjust their pricing to keep their market share, are not a price taker. The pricing and service set by the service providers is not the same as the next to keep the competition alive (Colander, 2013).

         Others may consider the cell phone service provider industry to be a monopolistic competition market structure and that idea from the outside looking in seems to be the cast.  However, when you look at the actual service provided it is the same service but the cell phone service providers calling differentiate access to the service and data plans they have set up in a way to maximize revenue when customers sign on for their services.

Supply and Demand

 Cell phone service providers create their demand for services in the marketplace: You have seen the commercials that cause customers to run from one cell phone service provider to the next. You know the commercials, “Get unlimited calling and four gigabytes (GB) of data for $45 a month, with a two-year contract and receive a free phone.”: This commercial is designed to not only get your attention but to give you the incentive to change your cell phone service provider.  Adding to the demand for the cell phone service provider services and causing a rightward shift of the demand curve because the demand for the cell service has increased for that company.  In return the supply curve shifts to the left because the demand curve has increased causing what is called a kinked-demand theory of oligopoly:  This is due to the cost of the services provided are marginal to the cell phone service provider and the revenue collected from customers is marginal. The reason is the other service providers have already begun their campaigns to match the one with the $45 a month service contract (“Kinked-Demand Theory Of Oligopoly”, 2016).