Internet Service Providers Market Structure

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Table of Contents

Introduction
Discussion
Conclusion
Reference

Introduction

When discussing business, market, and industry are important terms. The industry is centered on a large number of enterprises that create and manufacture a particular sort of product or service. In turn, each good and services compete in the market with similar commodities and services. The market could be described by its structure, which is how enterprises are divided and classified depending on the sorts of items they offer and how external events and elements influence their operations. The market structure’s characteristics are explained in this essay and exemplified through the Internet service providers (ISPs) industry, which is an example of market failure in the US.

Discussion

Market structure refers to how different sectors are defined and differentiated based on the degree and form of rivalry for goods and services. All market structures are determined by the criteria of the number of firms in the industry, the similarity of products they sell, and ease of entry and exit. The number of firms in the industry determines the competition between them. The degree of competition increases as the number of enterprises grows. Next, the similarity of the products (or their nature) determines whether the goods or services provided by the competing firms are homogeneous or differentiated. In this case, differentiation lowers the competition within an industry, while homogeneousness increases it. Finally, the barriers to entry and exit are the financial and other prerequisites that new firms might need to enter a market and leave it. The easiness of entry and exit leads to competitiveness within an industry. As a result, based on these criteria and the degree of competitiveness between the firms, there might be such market structures as perfect competition, monopolistic competition, oligopoly, and monopoly.

The ISP industry in the US could be analyzed in terms of the number of firms, the similarity of products, and ease of entry and exit. Concerning the number of firms, there are currently 1,337 Internet Service Providers companies in the United States (IBISWorld, 2022, para. 6). However, a few have the highest national business concentrations and market share, which lowers the competition. Next, firms in the ISP industry employ wired infrastructure to provide customers with internet connectivity, which is a similar service to all the competitors. However, many providers offer additional services such as web hosting, web page creation, and connectivity hardware for more significant differentiation. Finally, the IPSs sector in the United States is capital intensive due to needed equipment, which makes entry difficult, while sunk costs complicate exit. The combination of these factors makes the market structure of the industry in the US a monopolistic competition. Furthermore, this industry is an example of market failure since the biggest companies control most of the market and prevent others from competing while not providing services to rural areas. As a result, there is a discrepancy in demand and supply.

Conclusion

To conclude, the number of firms, the similarity of their products, and the entry and exit barrier determine the market structure. In the ISP industry, although the number of firms in the sector increases competitiveness, the slight differentiation and barriers to entry and exit lower it. As a result, the industry’s market structure is a monopolistic competition. Moreover, the industry’s most prominent companies in the United States keep smaller businesses from competition, although they do not suffice the demand for their services, creating a market failure.

Reference

IBISWorld. (2022). Industry market research, reports, and statistics. Web.

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Internet Service Providers Market Structure

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