ba w4.docx

In the hope of high returns, venture capitalists provide funds to finance new (start up) companies. However, potential competitors and structures of the market into which the new firm enters are extremely important in realization of profits. Among different market structures, which one do you believe provides the highest possible return for a new company and why? Discussion  Student one: Market structures are of four different types, namely; Oligopoly, imperfect competition, perfect competition, and monopoly. A complete competition market structure is where many small firms compete for the same customer base while providing a homogenous product (Erikson, 2016). An oligopoly market structure is constituted by a countable number of small firms competing for market share. A monopoly market structure is where one company controls the majority of the entire market share (Karier, 2016). Monopolistic firms often gain a competitive advantage based on their size or the uniqueness of the product they provide to consumers. The paper aims to illustrate that a monopoly market structure provides the most profitable investment avenue for venture capitalists intending to maximize returns. Unlike alternative market structures, a monopoly market structure guarantees investors the sole advantage of dominating the market. Investing in a new company with a new product trying to penetrate the market, investors should ascertain that the product stands a chance of elaborating uniqueness in terms of product use for consumers. Ensuring there are no similar or substitute products cements dominance for new firms, thus providing more opportunity to maximize returns while adjusting to market demands and ensuring control of market dynamics (Karier, 2016). Continued market dominance provides the firm with power dictates critical market factors for their progress, like the price of goods or services. In a monopoly, the dominant company controls most industry-related costs, thereby limiting new entrants’ ability to compete effectively. Through controlling industry information, monopolies gain a competitive advantage in the market, allowing them to maximize returns. A monopoly market structure has many barriers to entry and exit for competing firms. These entry barriers within a monopoly structure enable existing firms to maximize profits. Mostly, monopolies regulated by the government. Monopolies are not perfect and often present challenges that can be capital intensive to remedy (Erikson, 2016). However, venture capitalists regularly backed with a pool of finance enough to navigate through the challenges provided by the market. Also, ensuring market dominance provides such firms with the opportunity to recover and grow faster due to enormous sales volumes. A monopoly market structure provides the best investment opportunity for venture capitalists because stable market prices characterize it. Unlike other market structures where prices tend to be elastic as a result of competition, the monopoly structure allows one firm to dictate the price, thereby guaranteeing a return on investment. Lastly, monopoly market structures are associated with supernormal profits. Such profits, if appropriately channeled to research and development, can prove profitable for the company through growth and expansion. Customers are likely to get high-quality products at a low price, thus increasing gross sales of the firm. This way, the new company expands its customer outreach for the highest possible return. Out of all the existent market structures, the monopoly structure is the best option for venture capitalists. Monopolistic firms dominate the market, thus directly affecting crucial factors such as product pricing. Restrictions instituted by the government to protect monopolies help guarantee maximum profits for the venture capitalists. References Erikson, E. (2016). Between Monopoly and Free Trade: The English East India Company, 1600–1757 (Vol. 1). Princeton University Press. Karier, T. (2016). Beyond Competition: Economics of Mergers and Monopoly Power: Economics of Mergers and Monopoly Power. Routledge. Student two: What is a venture capital? Venture capital is a form of funding for new companies growing and developing. Venture capitalists are individuals who invest money into firms for a quid pro quo, giving firms higher rate of growth in exchange for ownership in the company. One current day example of venture capitalist is the businessmen and women on the TV show Shark Tank (Great show btw). In our current day and age, most VCs will invest in business models centered around technological advancements. However, this does not rule other ventures out, so long as the market structure has a presence of competitors and a good quality of returns the VCs will be interested. A VC must understand the market structure of the ventures, before investing. In a monopoly environment VCs see the greatest returns, due to their only being one seller and the market entry is very strict. In a monopoly the product has no substitutes that can be purchased elsewhere, therefore patents and trademarks are so important and usually asked about before a VC invest in the upcoming company. Competitors are barred from entry by using techniques such as unique production methods, unique technology and the sale of a product with no close substitutes (Gompers & Lerner, 2001). In a monopoly market structure, the firms can adjust and regulate their prices as they choose to develop a stronger margin of revenue. The residual profits from the high margins will increase profits distributed to the venture capitalists. From this thus, we see it is important for a venture capitalist to consider the type of market structure in which the new firm intends to operate on before deciding whether to finance it or not. References Gompers, P. A., & Lerner, J. (2001). The money of invention: How venture capital creates new wealth. Boston: Harvard Business School Press. Student three: Venture capitalists use a small percentage of their total funds available and invest into high risk investments such as start-ups. Typically, venture capitalists expect a return of between twenty five and thirty five percent per year over the lifetime of the investment (Zider, 1998). The market structure responsible for the highest level of market power would be a start-up controlling a monopoly. This would be due to the company being able to maximize profits by setting the price where they desire, with high barriers of entry for potential competition (Zeder, 2020). One aspect to consider is government intervention when it comes to protecting consumers from inefficiencies caused by monopolies. The three government policies towards monopolies are Competition Law where government controls acquisitions and mergers to prevent one dominating producer. The next is Price Regulations where government attempts to control the prices the monopoly may set. Another is Nationalization where the government directly controls the firm’s behavior and is highly frowned upon in a free enterprise economy (Zeder, 2020). A final option is for government to remain inactive which is more prevalently seen because intervention may be more harmful than the impacts of the monopoly itself. Monopolies have the potential for great profits until competition finds a way to intervene. And even at that point, the natural struggle for more firms to enter a tough market keeps competition lower than other market structures. References Zeder, R. (2020). The four types of market structures. Quickonomics. Retrieved from https://quickonomics.com/market-structures/ Zider, B. (1998). How venture capital works. Harvard Business Review. Retrieved from https://hbr.org/1998/11/how-venture-capital-works