Interclean

Differentiating between Market Structures Simulation and Questions

1) What are the advantages and limitations of supply and demand identified in the simulation?

It’s pretty obvious that when demand is high, supply and price increases (or should in most cases). However, depending on what your competition does with prices, is going to determine what you are going to do base, on the best interests of your company, to maximize profit. A monopoly is different. In a monopoly, a company can set the price.

2) Select an organization with which you are familiar. Identify the market structure of your selected organization. Evaluate the effectiveness of this structure for the organization.

As a mortgage lender I see that rate, service, and cost are the three most important things to succeed. These three things determine lots of things. First rate is what all borrowers see and that is what drives the competition. But the lowest rate does not always mean the highest profits for the lender, but this does lead to higher monthly cash flow for borrowers. Lenders have to sell their loans on the secondary market and they are looking for the best profit margin. Rate is determined by what the lender can sell, to cover all overhead and fixed costs and maximize profits, to the secondary market.

This leads into service and if your company has a higher rate for whatever reason, the better service you must have so your competition does not corner the market and push you out. About 75% of the time better service will win out over a rate that is .25% higher due to borrowers wanting things done now. And usually a higher rate is due to better service.

Lower rates in the mortgage industry sometimes lead to higher closing costs to make up for the loss of rate. This is not always the case especially when a company is trying to corner the market in an ever changing mortgage