Best market structure for a pipeline to function in

Competency

Understand various market structures and impacts upon firms, consumers, and government policies.

Course Scenario

Oil Company X is a large oil refinery which has been expanding and taking on new investment projects. Recently, they have considered building a pipeline that stretches across the United States, from Canada to New Orleans.

The Cost Department is looking to determine the impact of the pipeline on the current market structure, and they have asked you, a team member of the department, to submit a report on the expected changing market structure.

Instructions

As a cost analyst at your firm, you are asked to evaluate the type of market you are performing in. Assume the current number of oil companies exist in the market. After the pipeline is built, extensive trade restrictions will drastically increase Oil Company X’s hold on the market.

Submit a 2-page report detailing the current market structure, and the anticipated market structure after the pipeline is built. You will also include tables to show the characteristics of each of the above market structures and where our firm conforms or does not conform to the characteristics of the different market structures. Be sure to explain the impact on price and quantity, and any pertinent changes to the firm’s pricing strategy after the change in market structure.

The current market shares of each company are shown below, before the pipeline is completed and trade restrictions are implemented.