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Introduction

 Market structures are the competitive and pricing characteristics that define a market for particular products. There are several common market structures, and they include monopolistic competition, perfect competition, monopoly, and oligopoly. Each market structure is different in terms of the number of firms that can exist within it, the obstacle that new entrants would face, and the interdependence between the firms, pricing, and output decisions and the possibility of long-run profit. This paper will examine the market structure that restaurants operate in and explore the characteristics of a firm within the oligopoly market structure. 

 There is barely any town in the world without a restaurant, no matter how small in size. Restaurants belong to the market structure known as monopolistic competition. Monopolistic competition contains several distinctive characteristics, and we will discuss them one by one and how each appears in the restaurant industry. The first characteristic is that the market has a lot of firms that are operating at the same time and in most towns, one can expect to find several restaurants competing for the same small number of customers within the town (Stackelberg, 2010). There are few obstacles that prevent entry into the market meaning that anyone can set up a restaurant because the capital is not typically high, regulations are less strict, but competition can be quite an obstacle for the new firms looking to set up shop. However, competition makes prices of food and drinks to go down, and this is beneficial to customers as shown in the, I Love Lucy video clip where the drunk customer is in a position to buy a hamburger at a throwaway price as the sellers outcompete each other through reducing prices. There is a maximum in terms of output production at a given period in time. For example, in the I Love Lucy video clip, the drunk customer asks for one hundred hamburgers from Ethel, but he admits to not being able to provide that amount. 

 Another characteristic is that firms must differentiate their wares in order to stand out from the competition (Stackelberg, 2010). In the case of restaurants, this means having a different menu, offering specials or happy hours, restrooms, the type of food, scenery setting, and even table arrangement. Firms are independent meaning that restaurants can raise or lower prices on certain foods and they control their own brands too. Pricing decision is set at the point where marginal cost is same as marginal revenue where the profit is maximized meaning that producing an additional unit at a particular cost will raise the revenue by the same amount it cost to produce the unit (Stackelberg, 2010). Beyond that point, the restaurant will be incurring a higher cost to make the additional product and less profit. Restaurants, which are profit-maximizing firms, make no profits in the long run like other firms within the monopolistic competition. 

 The oligopoly market structure has few competing firms which have significant control in the market; decisions are made interdependently, pricing is strategic, profit, in the long run, is possible and entering the market is laced with obstacles(Lábaj, Morvay, Silani?, Weiss, & Yontcheva, 2017). An example of a firm in this market structure is Microsoft with its operating system, Windows. The only major competitor is Apple’s Mac iOS and Linux operating system. In this particular case, a new company seeking to enter the market is faced by huge challenges, the main being that these two currently dominate a big chunk of industry. They also have numerous patents to their names and possess great resource advantages in manufacturing. A new entrant would be hard pressed to make worthwhile profits. Also, because there are relatively few competitors, there is strategic pricing which comes as a result of the cautiousness that such firm exhibit in price setting in order to avoid destructive price hikes that can lead to loss of business and intense government regulation. This leads to a situation where a price raise by one is matched by the rest. 

 There is also product differentiation so that each company’s product is unique in features and presentation. Microsoft Windows has a very different interface from Apple Mac iOS, and each commands its own section of the market. There is also high competition so that a single upgrade is followed by another, but because of the complexity of the products each produces and the interdependence among firms, the output is restricted. This competition works in favor of consumers who are assured of great products at affordable prices and which exist in the market for longer periods of time. There is also the possibility of long-run profit where the firms can change their output according to profit expectations (Lábaj, Morvay, Silani?, Weiss, & Yontcheva, 2017). 

Conclusion

 Conclusively, the market structure that a firm operates in determines its profits and ability to survive during hard economic times. Firms can also exist in different market structures at the same time according to the products that they operate in. Most popular products are found in the oligopoly and monopolistic competition market structures while monopolies are few in any market. Some firms or sectors of the economy like agriculture possess elements of perfect competition, but this form of market structure is only idealistic.

References

Lábaj, M., Morvay, K., Silani?, P., Weiss, C., & Yontcheva, B. (2017). Market structure and competition in transition: results from the spatial analysis. Applied Economics, 50(15), 1694-1715. doi:10.1080/00036846.2017.1374535

Stackelberg, H. V. (2010). Market Structure and Equilibrium. Berlin, Germany: Springer Science & Business Media.