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Market Structures

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1) Over the course of a product life cycle, as the firm moves through the sequence of monopoly, oligopoly, monopolistic competition, and pure competition, the profit opportunities diminish. What strategies could the firm pursue to prolong its profitability?

2) Firms that operate in an oligopoly must take into consideration how competitors will react to their price and output decisions. In addition to the model used in the simulation, what other strategies might govern how one competitor reacts to another's price and output decisions?

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Answer 1: As the firm moves from monopoly to pure competition, one strategy that could help the firm to prolong its profitability is DIFFERENTIATION. As more and more companies enter the market, the market structure goes towards perfect competition. But perfect competition only exists if the product is homogeneous across all suppliers. Thus one way to preserve profits is to differentiate one's product with respect ...

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