Business Strategies

3

Market Model for Acadia Healthcare

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Market Model for Acadia Healthcare

Today’s economy has several types of industries and firms. However, an analysis of the industries or firms is made easier by dividing them into different market models based on the levels of competition within the industry. There are four key market models: oligopoly, monopolistic competition, pure monopoly, and pure competition.

Oligopoly best fits Acadia Healthcare. Oligopoly can be defined as a market made up of a small number of companies or firms (Wang & Werning, 2020). Acadia Healthcare is the leading provider of mental and behavioral healthcare services within the United States. It operates in a market dominated by a few firms. Even though demand and supply influence prices, output, and markets, Acadia Healthcare, together with other firms within the industry, set prices for their services. Some of these firms include AmerisourceBergen and Maxim Healthcare. As of 2021, AmerisourceBergen had a total market share of around 23.36 per cent (CSIMarket, 2021). On the other hand, Maxim Healthcare had a total market share of 8 per cent.

An oligopoly market is associated with several implications. It can slow down innovation, increase prices, and block new entrants – all of which affect consumers negatively. Slow innovation could be a result of a lack of enough monetary funding. On the other hand, higher prices could be a result of firms’ interdependence in the market. Companies in an oligopoly can collaborate to set a price for their products/services to maximize profit. As a result, prices will be greater than the market-clearing prices. Besides that, it is always hard for new firms to enter an oligopoly. The most critical barriers include government licenses, high startup costs, patents, lack of access to complex and expensive technologies, as well as strategic action undertaken by incumbent companies designed to destroy or discourage new companies (Hattori & Tanaka, 2020). When a new firm manages to enter into an oligopoly, it will struggle to survive. The new company will be smaller, which means that it will have a higher average production cost, making it harder to compete with the already-established companies.

References

CSIMarket. (2021). Amerisourcebergen Corp. Retrieved from: https://csimarket.com/stocks/compet_glance.php?code=ABC

Hattori, M., & Tanaka, Y. (2020). License fees in oligopoly when outside innovator can enter the market: two-step auction. International Game Theory Review, 22(03), 2050003.

Wang, O., & Werning, I. (2020). Dynamic oligopoly and price stickiness (No. w27536). National Bureau of Economic Research.