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Assignment 3 Market Model Patterns of Change

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Assignment 3 Market Model Patterns of Change
Professor Koros
Strayer University

The Industry and General Pattern of Change Of Market Model The fast paced industry surrounding health insurance in the United States has experienced rapid growth. There are numerous providers representing a competitive marketplace where no single entity rules over prices. However, the industry is undergoing massive transformation processes and slowly evolving into an oligopoly, where only a few large firms will eventually control market dynamics. Throughout the years there has been more than 500 mergers involving health insurers (Bakhtiari, 2010). Although many small insurance companies operate in the market, the industry Led by WellPoint, 12 health plans cover two-thirds of the enrolment in the U.S. commercial-insurance market (Bloomberg News, 2010) . There are reports that predict over 100 insurers with 200,000 members or less could be pushed out of business, because smaller insurers are unable to invest in the infrastructure and technology to effectively manage care (Bakhtiari, 2010). The good news is that small companies are being merged with larger companies rather than going out of business.
The Long and Short Run Behaviors in a “Market Economy” We understand there is no single theory to explain oligopoly behavior, however for this comparison; we will use the Kinked-Demand theory of Oligopoly. The kinked demand model assumes that other firms will ignore the increase, if one firm raises its prices, while other firms in the industry will match any price cuts. These actions will result in a demand curve for the firm that is kinked at the current equilibrium price (Department of Economics). Taking the assumption into consideration, a single firm which tries to raise price will be left in the dark by the other firms and will lose market share, suffering a huge loss in...

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