The Theories Of Market Structure - 2791 Words

Market Structure Market Structure is defined as the particular environment of a firm, the characteristics of which influence the firm’s pricing and output decisions. There are four theories of market structure. These theories are: - Pure competition - Monopolistic competition - Oligopoly - Monopoly Each of these theories produces some type of consumer behavior if the firm raises the price or if it reduces the price. Perfect Competition The model of perfect competition gives a description of a market situation that is defined by: Many buyers and sellers to the extent that the supply of one firm makes a very insignificant contribution on the total supply. Both the sellers and buyers take the price as given. This implies that a firm in a perfectly competitive market can sell any quantity at the market price of its product and so faces a perfectly price elastic demand curve. (Beattie LaFrance, 2006). Long Run Equilibrium for the Firm Since there is freedom of entry into the industry the surplus profits will attract new firms into the industry. The overall business result is that the supply of the product will increase and the price will significantly fall. The individual business enterprise will face a falling perfectly elastic demand curve, and the overall surplus profits will be reduced. This will go on until the firm is no longer making surplus returns, that is, when it is just covering its production expenditure. At this stage no more firms will be attracted toShow MoreRelatedCritique on Mm Theory1159 Words   |  5 PagesAmerican economist Franco Modigliani and Merton H. Miller published The Cost of Capital, Corporation Finance and the Theory of Investment (Hereafter MM theory); a paper presented the initial MM theory, which states that under a certain market price process, in the absence of taxes, bankruptcy costs, and asymmetric information, and in an efficient market, the value of a firm is unaffected by how that firm is financed. It does not matter if the firm s capital is raised by issuing stock or sellingRead MoreOptimal Capital Structure and Stock Price835 Words   |  3 Pages To put it simple way, first we have to understand optimal capital structure is maximizes a firm’s stock price, and the target capital structure is mix of the debt, preferred stock, and common equity the firm wants to have (Eugene and Joel 2009). The capital structure is also showing how a firm use different sources of funds to finances its overall operations and growth the stock price. Capital structure shows that how a firm’s assets have been established debt and equity, it is very important inRead MoreMarket Timing and Capital Structure for Baker and Wurgler1526 Words   |  7 Pagesequity when their market values are high, relative to book and past market values, and to repurchase equity when their market values are low. We document that the resulting effects on capital structure are very persistent. As a consequence, current capital structure is strongly related to historical market values. The results suggest the theory that capital structure is the cumulative outcome of past attempts to time the equity market. Introduction â€Å"Equity market timing† refersRead MoreCapital Structure Of A Company1285 Words   |  6 PagesThe Part-I of this paper analyzes the Treasury Manager and his various approaches towards the Capital Structure, by showing arguments for and against each theory. We discuss about four types of approaches that may be taken by the treasury manager while considering the Capital Structure of a Company. We have discussed Rolls Royce PLC’s capital structure strategy and analyzed the capital structure of the company over the past 10 years using an empirical case/research. The Part-II of this paper showsRead MoreGeneral Motors, Lexus, Gmc And Cadillac As A Representation Of The Broader Categories Of Cars869 Words   |  4 Pagesand focus primarily on research regarding market type and marketing strategies. B. Research Question and Hypothesis This paper will answer the research question; â€Å"Prove that General Motors is operating in an oligopolistic market structure and outline how they strive to be a leading competitor in the automotive industry,†Based off primary research from sales statistics and cost patterns, I hypothesis that the company is operating in an oligopolistic market structure.To verify, this paper will focusRead MoreCapital Structure Of A Company960 Words   |  4 PagesCapital structure is the proportion of debt and equity in which a corporate finances its business. The capital structure of a company/firm plays a very important role in determining the value of a firm. There are various theories which propagate the ‘ideal’ capital mix / capital structure for a firm. A corporate can finance its business mainly by 2 means i.e. debts and equity. However, the proportion of each of these could vary from business to business. A company can choose to have a structure whichRead MoreThe Market Structures Of A Market Structure962 Words   |  4 Pagesfour market structures that function in the worldwide market. Each of these market structures correlates with one another to create the demand and supply of the market. However, these market structures have some unique traits that no other theory can have alike. Therefore, a comparison and contrast is necessary to distinguish each of these theories from one another. These market structures of the economy are perfect competition, monopoly, monopolistic competition, and oligopoly. These market structuresRead MoreCapital Structure Policies1538 Words   |  7 Pagesimportant factors for our company to consider in making decisions relative to capital structure. Some of these factors relate to debt choices and r eviewing performance results where volatility plays a role in making the decisions. Deciding what the proper capital structure policies are is vitally important, and directly affects our stockholders. Other considerations relate to the applicability of capital structure theories in making these key decisions, including evidence regarding how our investors mayRead MoreArticles Relating to Capital Structure-Essay1658 Words   |  7 PagesContents :- Introduction on Capital Structure†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦..5 Summary and Evaluation of Articles†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦6 Conclusion†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦..8 References/Bibliography†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.9 â€Æ' Introduction On Capital Structure :- In the field of finance capital structure means a way an organization or firms finances their assets by the way of some mix and match of Equity, Debt or Hybrid Securities. The modern thinking on capital structure is based on the Modigliani-Miller theorem given by Franco ModiglianiRead MoreTerm Structure of Interest Rates1172 Words   |  5 PagesUnderstanding the Term Structure of Interest Rates Prepared for Fundamentals of Financial Management Distributed October 24, 2005 TABLE OF CONTENTS List of Figures.......................Â…Â…Â…Â…Â…Â…Â….......................................Â….....................iii List of Abbreviations and Symbols.............................Â…Â…Â…Â…Â…Â…Â…..........................iv Summary.............................................