In the case of market economies there are different forms of market that are present and rest upon the type of industry and the companies that resides within that industry. It is vital for businesses to understand and know the type of market system under which they are operating so that the pricing mechanism and other product related decisions can be determined with ease. Here in this scenario we are dealing with four different types of market structure and their features:
Answer 1
Perfect competition market
A perfectly competitive market can be acknowledged as a marketplace where there are a lot of buyers and sellers present. Also, there are various varieties of products that can be sold without any kind of restriction if proper knowledge of the market and the industry is being held by the sellers.
There are different types of characteristics of a perfectly competitive market, some of which are:
Freedom of entry and exit of the organizations:
The enterprises and the companies are given full management control over entering the industry or leaving it. It can also be understood as with example where many small businesses are trying to enter the industry after seeing huge profits of the already settled businesses but they have sustained losses due to lack of knowledge because of which they are not able to conduct business anymore and hence are liable to exit the industry.
A large base of sellers and buyers:
One of the most important characteristics of a perfectly competitive market is the number of buyers and sellers present in it. Individual demand does not affect the market much and hence the use number of buyers and sellers will be helpful for the companies to determine the most appropriate products for the market (Mankiw & Taylor, 2011). Individual sellers are also very vulnerable because they have small deals in which the total output is not influenced in terms of price or action that is being undertaken by him in his business.
Homogenous products:
There are many e companies were trying to sell or produce different kinds of products that are not preferred by the customers but are sold individually by the sellers. The genus products are generally having an infinite cross elasticity of demand and hence sellers are restricted from raising the price of the products (Mankiw & Taylor, 2011). There are many kinds of substitute goods present in the market for this type of products because of which is the seller will increase the price then the consumer will leave him.
Perfect knowledge of the market conditions:
Both the buyers and sellers must have close contact so that they can process proper knowledge of the industry and market they are dealing with. Proper analysis of geographical and physiological environment should be conducted to properly estimate all the possible strategies that can be carried out for perforating the business activities in that particular market area.
Short run and long run equilibrium
Monopoly market:
Monopoly market can be understood as a market environment where only one seller is available for a particular product because the salami has a period of different types of barriers for others to enter the market. These products have no close substitute because of which they are very highly-priced and also they have a very low cross elasticity of demand which affects the income of the consumers vigorously. The cell can be termed as the king of the market because there are no other competitors because of whom we can also take advantage of the consumers by pricing the goods at very high prices.
There are various characteristics of a Monopoly market, some of which are:
Monopoly can be termed into various individual proprietorship and partnership organizations.
The cross-price elasticity of the products is very low because of which it can be stated that the product having no close substitute which makes the seller leader of the market (Mankiw & Taylor, 2011).
It is a theory that pure Monopoly cannot exist in this world.
It is generally noticed in a graphical representation that the monopolistic demand curve slopes down towards the right.
The monopolistic market generally consists of only one producer and seller who are selling a product which is different from any other product available in the industry.
The cellar exercises complete control over the supply of products because of which elasticity demand for these types of products is considered to be negligible. Barriers are created for other organizations to enter the monopolistic markets. Generally, the quantity and price of the products are very variable in the monopolistic market conditions and are simultaneously determined with the passage of time.
Monopoly long run
Monopolistic competition
The monopolistic condition can be mentioned as a marketplace where there are many small firms trying to compete with each other in order to next sale of the products that are having almost the same characteristics.
There are various types of characteristics of monopolistic competition, some of which are:
Product differentiation:
One of the most important functions for the sellers in a monopolistic competitive market it is to proper differentiation of the products on the basis of their characteristics and features. By differentiating the products appropriately the sellers can divide them into separate categories which will make the work much efficient in nature (Hunt, 2010). The cross-price elasticity demand of the products are observed to be high because of the presence of similar or substitute products and also changes can be observed in the price and sales of the product because of other market conditions (Hunt, 2010).
The huge number of sellers in the market:
A monopolistic competitive market consists of a lot of sellers because of which it is very inconvenient to determine the total output. Also, the sellers are required to opt for various price-output policies which make it important for them to stick to the independent course of actions (Hunt, 2010).
Short run and long run
Oligopoly
Oligopoly is a market condition where there are fewer organizations who are trying to sell different products on the basis of their homogenous nature. Different types of industries like copper, steel, and zinc generally observed an oligopoly situation among the producers.
There are various characteristics of oligopoly and management, some of which are:
Advertisements:
It is very important for the producers and sellers of the market to determine proper advertisement strategy so that they can make proper decisions in accordance with them. They are required to make certain budgets in which they have to fulfil all the needs of the organization in terms of advertisement.
Interdependence:
The sellers of the oligopolistic market observe various types of problems in terms of interdependence because there are more levels in the market which makes it vulnerable for them to take any action without any planning.
Competition:
It is very important for the sellers to compete properly in the market because each and every decision of the seller will affect the overall condition of the industry because of which a tough competition in the market will be created (Andersen & Vetter, 2015).
Barriers for entry of the organizations in the market:
The increased competition in this kind of industries makes it very vulnerable for the organizations to enter or exit the market because of which they get restricted.
Long run Oligopoly
Answer 2
The best industry to understand the concept of monopoly in the Australian market is the electricity industry. Australian electricity industries are very active and strong because it tries to conduct business all over the country single-handedly. It is generally observed in the monopolistic market that the seller keeps the price of the products at its maximum level and determine the rules of the whole industry by himself because he is the only seller in the market. A proper management structure and board are required to set a monopolistic industry in the market because it is to be established for a long-term basis (Weyl & Fabinger, 2013). There was an error when the only company that supplied butter in the whole world was Maul but now many other organizations like Nestle have occupied there is space in the industry. It is also observed that the government is responsible for most of the rules and regulations that are being said by the seller because a monopolistic market generally has huge tie ups with government facilities. The electrical supply service of Australia is a governmental organization and is having a Monopoly in the Australian market in terms of selling electricity (Spulber, 2013). The water supply industry is also an example of a monopolistic market in Australia.
It is one of the most common factors in every industry, electricity is a common source that is needed to produce goods or sell services. Hence transmission of low voltage and high voltage electricity e by the industry is one of the most profitable businesses in the country. The high capacity lines that can transmit electricity with the least electrical resistance it makes it easier for the Australian government to who distribute electricity and create a Monopoly situation in the market (Tveberg, 2018).
It is not easy to store electricity because of which it is much convenient to produce it simultaneously in order to fulfil the demand of the population. This requires a large part of the land and also uses capital because of which it is not easy for industries to start their own electricity production plants. Reliable supply and operating generators back the bye several reserved units are required for producing electricity instantaneously and providing them to the population so as to meet their needs and also face the unpredictable changes and contingencies of the environment (Sabateir, 2016).
It is a clear fact that the Australian electricity production industry is the typical electricity supply in the huge integrated owner of generation, transmission, and distribution of electrical services. The company has a monopoly granted by the government because of which it earns a big part of revenue for the country. It also operates and controls area which is much reliable and requires regular dispatch of electricity generation which is very economical in nature.
The electrical industry of Australia has been clearly authorized for producing energy and serving it to the population of the country. The government has given full access and power to the authority to act upon the industry properly so that they can create a Monopoly in terms of electrical services that are being provided in Australia. All the services that have been provided by the government are very efficient and impressive which have led to successful management of the business in the country. The electricity prices are increasing with the change in operations which is not good for a particular group of people because it is going out of income range (Rauch & Gronalt, 2011).
Answer 3
Monopoly and efficiency
It is observed in a Monopoly market that the price of a product exceeds the marginal cost of the product which really depicts the situation where the market is having an efficient economic condition. The price of the products is needed to be set in accordance with the decisions that are being associated with the costs and benefits of the products. Efficiency can be easily maintained in the industry of the prices of the products are kept in balance to the marginal cost of the product or services sold by them (Electric, 2016). It is generally noticed that the consumption of monopoly goods and services are less in nature because the Monopoly forms generally price the products in a higher range.
A proper comparison of a perfectly competitive market with the inefficiency of monopoly market can be imagined by the help of a diagram. In the short and supply curve is formed by adding up all the individual marginal cost which is considered to be the actual and average marginal cost curve for the organization.
Comparison in the behaviour of a perfectly competitive industry with the Monopoly industry can be understood with the help of market demand and marginal revenue of a particular product. Analysis of the marginal cost curve can be helpful for understanding the supply curve of a perfectly competitive industry. A perfectly competitive industry cells a particular quantity of goods hat estimated prices. Sometimes a small part of the consumer surplus is also transferred from competitive case to Monopoly case.
A scenario is being observed where the industries which are trying to merge and impose restrictions on the entry of new firms. This will lead to the perfectly competitive industry to change into a Monopoly market. It can be assumed that a Monopoly industry is being created where the marginal cost and the demand curve is competitive in nature for the industry. Generally, the marginal revenue curve and the demand curve are the same for the Monopoly firm. In a competitive solution, the prices are the products are higher than usual.
There would be a gain of quantity to the society when moving from Monopoly solution (Am) to competitive market solution (QC). To identify the benefits gained by the consumers we have to observe the area present between the demand curve Am and QC. An increase in the production output will lead to an increase in the cost. An additional cost incurred in producing each unit is soul with the help of the marginal cost curve which is present in the graph provided above. The total cost incurred by introducing these extra units can be observed in the area that we see under the marginal cost curve. The net benefit on the cost of moving from a Monopoly market to the competitive market can be obtained by substituting cost from benefits which are represented by the shaded area. The shaded area is also known as the deadweight loss.
Monopoly versus perfect competition
Monopoly and perfect competition are two corners of the same industry but there are various similarities present between them. The aim of both these market is to maximize profits at the cost and the production function. One more common point between them is that the decision regarding shutdown is the same and also both of them have perfectly competitive factors.
Apart from the similarities, there are differences also. The price is equal to the marginal cost show the economic profit earned by a firm operating in a perfectly competitive market is zero. However, in the case of a firm operating in a Monopoly market the prices are set higher than the marginal cost and therefore the firm can earn a positive economic profit. A perfect competition helps in maintaining equilibrium in the market because the price, as well as the quantity of the goods, is economical (Chester & Morris, 2016). In Monopoly market, the quantity produced is lower but the price of the goods is higher. This is the reason by the government has set certain regulations for the monopoly market.
Answer 4
There are many objections in running a Monopoly market apart from high prices and economic efficiency. A Monopoly firm enjoys because of the concentration of market power which is a matter of concern for many people. Also, there is a high entry barrier for rivals which keep the Monopoly firm save from competition. A highly competitive market which is in a decentralized state is usually preferred by people because it gives the customers a new variety of products at a cheaper price (Bassi et. al, 2015). If a firm charges a lower price from its customers it also has to improve its production methods for reducing costs. A Monopoly market provides the customers a very few choices of products that do not have an adequate quality for which the consumer has to pay a higher price.
As per the beliefs of many economists, it has been observed that the firms operating in a monopoly market can protect and expand their position because economic profits are present (Bassi et. al, 2015). The monopolist is so concerned about maintaining their positions that they are ready to give their economic profit to the political leaders or the public authorities who can help them (Falk et. al, 2018).
The competitors of Microsoft are the company of installing its Browser on the computer of its competitors. This has created a doubt in the minds of the people regarding the reputation of Microsoft. There are a large number of people who invest their trust in the products that are manufactured by Microsoft. The consumers were very satisfied with the product quality and the pricing till now but the dominant position in the market has raised certain questions. The consumers are concerned about the pricing of the product and also about innovations.
One of the most important factors in the monopoly market is that its recognition and power in the market may not last for a very long time. There may be a situation in the future where other firms capture the power of the Monopoly firms and if they can do so then they will be able to earn huge profits. This profit can be earned only if the other firms can break down the high barriers to entry which keeps the Monopoly firm safe from outside competition (Falk et. al, 2018).
We can define a Monopoly market as a participant which has a large customer base but is the only seller. The sellers are so in number because they have copyright and patent with them. In the present scenario, it has become a very important question that whether Monopoly market will have a positive or negative impact on the economy. It is a very common fact that the monopolist charge different prices from different customers and the same product is sold at a significantly higher price. This feature of a Monopoly market shows that it hurts the economy but there are certain exceptions to this.
In case of a monopoly firm, there is a presence of economic profit because the price charged is greater than the marginal cost but in a perfect competition market, there is no economic profit as the price charged is equal to marginal cost. So we can see that there is a normal profit in a perfect competition market. If a producer is interested in the development and technological progress then he needs to earn supernormal profits. This would also boost economic growth. A producer cannot think of engaging themselves in the innovation of new products because it is very expensive. It is very important to adopt new technology because if there is no improvement in the technological fields then the economic growth of the country will stop and the economy will remain underdeveloped.
The points mentioned above shows that Monopoly has a positive impact also. It is very difficult to say whether the Monopoly market is good or bad for the economy and hence going by the general scenario, it can be commented that it should not be broken into oligopoly.
References
Andersen, P., and Vetter, H. (2015). Pricing as a Risky Choice: Uncertainty and Survival in a Monopoly Market. Retrieved from http://www.economics-ejournal.org/economics/discussionpapers/2015-53/file
Bassi, M., Pagnozzi, M and Piccolo, S. (2015). Product Differentiation by Competing Vertical Hierarchies, Journal of Econnomics & Management Strategy, 24(4), 904-933. DOI: 10.1111/jems.12115
Chester, L. & Morris, A. (2016). A new form of energy poverty is the hallmark of liberalised electricity sector. Australian Journal of social issues, 46(4), 435-459. DOI: 10.1002/j.1839-4655.2011.tb00228.x
Electric, S. (2016). The changing face of Australia’s Heavy Industry. Retrieved from: https://www.australianmining.com.au/news/the-changing-face-of-australias-heavy-industry-2/
Falk, A & Becker, A., Dohmen, T., Enke, B., Huffman, D & Sunde,U. (2018). Global Evidence on Economic Preferences, The Quarterly Journal of Economics, Oxford University Press, vol. 133, no.4, , pp 1645-1692.
Hunt, S.D. (2010). The Theory of Monopolistic Competition, Marketing’s Intellectual History, and the Product Differentiation Versus Market Segmentation Controversy. DOI: https://doi.org/10.1177/0276146710382119
Mankiw, N.G. and Taylor, M.P. (2011). Economics (2nd ed) Andover: Cengage Learning
Rauch, P., & Gronalt, M. (2011). The effects of rising energy costs and transportation mode mix on forest fuel procurement costs. Biomass and Bioenergy, 35(1), 690-699. DOI: 10.1016/j.biombioe.2010.10.015
Sabateir, P. A. (2016). Analysis of the Policy. Comparing Government Activity
Spulber, D. (2013). How Do Competitive Pressures Affect Incentives to Innovate When There is a Market for Innovations? Journal of Political Economy, 121, 1007-1254. Retrieved from https://www.jstor.org/stable/10.1086/674134
Tveberg, G. (2018). Continuously Rising Energy Costs Will Cripple The Economy. Retrieved from: https://oilprice.com/Energy/Energy-General/Continuously-Rising-Energy-Costs-Will-Cripple-The-Economy.html
Weyl, E.G. and Fabinger, M. (2013). Pass-Through as an Economic Tool: Principles of Incidence under Imperfect Competition. Journal of Political Economy, 121(3), pp. 528-583. Retrieved from: http://econpapers.repec.org/article/ucpjpolec/doi_3a10.1086_2f670401.htm
