Free Essay SamplesAbout UsContact Us Order Now

Assignment topic: Perfect competition, monopolistic competition, oligopoly and monopoly.

0 / 5. 0

Words: 1650

Pages: 6

31

Market Structures
Name
Institution
Date

Introduction
This paper seeks to give the meaning, features and functionalities of different market structures. Perfect competition is also called pure competition. It describes a market whereby there are no participants who are sufficient to attain the power of setting prices of a product with homogeneity. Since this type of structure has strict conditions, there are only a few competitive markets that are perfect. This market is a rare occurrence but seeks to contrast other market structures when it occurs. Monopolistic competition is a type of market structure which shows an imperfect competition with many producers selling differentiated types of products. They do this differentiation through branding or quality therefore making the products not to be perfect substitutes. A particular firm will take the prices charged by its competitors while ignoring the impact of its prices on other companies’ prices (Al-Kaabi, Demirbag, & Tatoglu, 2010). This type of market structure maintains a spare capacity. The major examples of industries using monopolistic competition include restaurants, cereal firms, clothing industries, shoes industries and service industries located in cities. Monopoly markets occur when an enterprise is the single supplier of a particular commodity. This structure faces no economic competition to produce goods and services, lack substitute products, and services and charges a high monopoly price (Bacchiega, n.d.). Oligopoly market is a case whereby the market has a few providers and many buyers.

Wait! Assignment topic: Perfect competition, monopolistic competition, oligopoly and monopoly. paper is just an example!

Firms in this market relatively behave the same like those in monopoly markets despite being controlled by a few suppliers. The high number of buyers in the market has fewer alternatives to choose compared to the vendors. The providers take advantage of the many consumers and determine the market supply and price. The products in the market are very close substitutes for each other which make the firms intensively compete for market share (Etro, 2011).
Features of the market structures
i. Perfect competition
A Perfect competition structure has a large number of buyers and sellers where the consumers are willing and can buy the product at a prevailing price while producers are willing and able to sell the products at a certain price. There are no barriers to entry or exit. There is the presence of the perfect factor mobility. This market structure has perfect information where consumers and producers have complete knowledge of the price, utility, quality and production methods of products. There are no transaction costs in making an exchange of goods. Profit maximization is present since the firms can sell where marginal costs meet marginal revenue. Homogeneity of products, since they are perfect substitutes, is available. The market experience a non-increasing returns to scale that ensures that there will always be an enough number of firms in the industry. The presence of property rights determines what may be sold, and the rights conferred on the consumer. The presence of rational buyers enables them to make intelligent purchases on the information available. The costs or benefits of any particular activity do not affect third parties since there are no externalities (Colciago & Rossi, n.d.).
ii. Monopoly
Monopoly markets are profit maximizers. They are the price makers since they decide the price of the good or product to be sold by determining the quantity to demand the price desired by the company. There are strict barriers to entry by other sellers who are unable to enter the market. This structure has only a single seller of the good that produces all the output. The presence of price discrimination is rife because a monopolist can change the price and quality of the product (White, n.d.).
iii. Oligopoly
Oligopoly markets are shown by similar or differentiated products, restrictions on entry, rigidity in prices, non-price competitive nature, mergers, and collisions. The nature of the market structure also does not allow free entry because of patents, copyrights, government rule, and regulations. New firms will also not be interested to join the market because of the associated high cost of advertisement and product differentiation to capture market share.Each firm in this market makes an independent decision, but after taking into account the possible action by competitors’ subsequent move (LOERTSCHER, 2008).
iv. Monopolistic competition
This market structure has many producers and many consumers in the market. There is no single firm with an entire control over the market price. Consumers take it that there are non-price differences among the rivals’ products. This structure exhibits a few barriers to entry and exit. The producers in this market structure have a degree of control over prices charged for goods and services (Al-Kaabi, Demirbag & Tatoglu, 2010).
Price and output determination
i. Perfect competition
With perfect competition in the short run, a firm is able to earn an economic profit. This case is shown in the diagram below, as AR (average revenue) which is represented by the letter P, is higher than the AC (average cost) which is represented by the letter C.
On the other hand, in the long term, it is impossible for the profit realized to be retained. The entry of new firms or expansion of existing companies in the market shifts the demand curve of every firm downward. Simultaneously lowering the average revenue (AR), the price, and marginal revenue (MR) curves. The result for that is that the company will make the only normal profit. The demand curve (horizontal) will touch the average total cost (ATC) curve at the point that is lowest.
Source: IQ OPTION
45720038100000
ii. Monopoly
The monopoly price is the highest attainable. The price for free competition is the lowest which may be taken for any considerable time. The one for the greatest occasions can be squeezed out of the buyers, or which they will consent to give.

Source: QATAR MONOPOLY INDUSTRY
iii. Oligopoly
Firms in this market assume a kinked demand curve. The competition in the market is imperfect with high price competitiveness created by the sticky upward demand curve. Firms, therefore, use non-price competition to increase in their market and increase their revenue. That is because; prices below the kink are relatively inelastic, while above the kink they are relatively elastic. The marginal revenue curve is not continuous with a gap at the kink. In the long run, the firm can achieve supernormal profits because they enjoy economies of scale and the marginal cost decrease with the increase in output ensuring high profits. A mall price increase by one firm with the intention to increase sales will lose many customers because competitors will not react to the variation in price. However, a decrease in price will not have any impact on sales because the other firms may respond by reducing their prices also, and none of them will lose its market share (LOERTSCHER, 2008).

Source: QATAR OIL PRICES
iv. Monopolistic competition
The monopolistic competition short-run equilibrium occurs where the firm attains maximum profits and offers a quantity with the marginal revenue (MR) being equal to the marginal cost (MC). The company will determine a price based on the average revenue (AR) curve. Total profit is given by the difference between the firm’s average income and average cost, multiplied by the quantity sold (Q) (Zhelobodko, Kichko & Ushchev, 2013).
The long-run equilibrium of a monopolistic competition firm is experienced where the firm produces where marginal cost and marginal revenue are equal. However, the demand curve (and AR) shifts as other companies enter the market and increase competition. The company won’t sell its products and services above average cost and cannot claim an economic profit (Zhelobodko, Kichko & Ushchev, 2013)
-62928533337500Source: QATAR BANKING INDUSTRY
Economic efficiency of the outcomes of perfect competition and monopoly
The allocative and productive efficiency in a perfectly competitive market are useful to examine. That is because they show the characteristics that no other structure of the market will exhibit. They attain a level of efficiency with no likelihood to be experienced in less competitive markets like monopoly, oligopoly, and monopolistic competition. Allocative efficiency is a way in which firms exhibit the characteristics that would not be presented by other companies. It deals with the quantity of output produced in a market. Productive efficiency requires that firms produce their products at the lowest average total cost possible. In this type of market structure (perfect competition), both types of efficiencies are attained in the long run.
Monopoly markets are productively efficient. In the long run, the seller will be on the long term average cost (AC) curve since trusts want to maximize their profits by minimizing costs (White n.d). However, monopolies are not allocative efficient in the long run because for them to maximize profits, they must produce where the marginal revenue equals the marginal costs. However, the marginal revenue will fall quickly than the average income as output increases therefore making the price greater than marginal costs at a given level of production. Because this market structure is allocative inefficient, the consumer will be ripped off resulting in a deadweight social loss.
Conclusion
In conclusion, an oligopoly market is an imperfect market, which survives at the expense of the consumer. In this market, the supplier has the market power and the consumer have no say in the market (LOERTSCHER, 2008). The rigid, high prices in the supermarkets have also contributed to the increase in the cost of living while the supermarkets record very high profits. That is an indication that the British people are not ready for the oligopoly market. The pricing strategy, which also includes price discrimination, has a discriminatory effect on the low-income earners. The point of balance in perfect competition is where the market demands will be equal to the market supply. The firm’s price is determined at the equilibrium point. However, in the short run, the balance will be affected by demand. In the long term, both demand and supply curves will change the balance. The perfectly competitive firm is bound to receive an average profit in the long operate at the equilibrium position. A monopoly can rarely be established within a country with no overt and covert governmental aid in the form of tariffs or other devices. That will be impossible on a world scale. Where there is free trade, the international cartels would disappear with immediate effect (Jaffe, 2010).

References
Al-Kaabi, M., Demirbag, M., & Tatoglu, E. (2010). International Market Entry Strategies of Emerging Market MNEs: A Case Study of Qatar Telecom. Journal Of East-West Business, 16(2), 146-170. doi:10.1080/10669868.2010.486104
Bacchiega, E. Comparative Advantage Under Monopoly: A Note on the Role of Market Power. SSRN Journal. doi:10.2139/ssrn.1734843
Colciago, A., & Rossi, L. Endogenous Market Structures and Labour Market Dynamics. SSRN Journal. doi:10.2139/ssrn.1858757
Etro, F. (2011). ENDOGENOUS MARKET STRUCTURES AND STRATEGIC TRADE POLICY*. International Economic Review, 52(1), 63-84. doi:10.1111/j.1468-2354.2010.00619.x
Jaffe, A. (2010). Oil, Dollars, Debt, and Crises. Cambridge University Press.
LOERTSCHER, S. (2008). MARKET MAKING OLIGOPOLY*. The Journal Of Industrial Economics, 56(2), 263-289. doi:10.1111/j.1467-6451.2008.00341.x
White, L. Market Definition in Monopoly Cases: A Paradigm is Missing. SSRN Journal. doi:10.2139/ssrn.844187
Zhelobodko, E., Kichko, S., & Ushchev, P. (2013). Factor Structure and Market Integration under Two-Factor Monopolistic Competition Model. Spatial Economics, 3(35), 10-29. doi:10.14530/se.2013.3.010-029

Get quality help now

Ryder Croft

5.0 (610 reviews)

Recent reviews about this Writer

I am grateful to studyzoomer.com for their exceptional essay writing service. The writer provided a well-structured and thought-provoking essay that impressed me.

View profile

Related Essays

Sports Poem about swimming

Pages: 1

(275 words)

Communication dynamics

Pages: 1

(275 words)

Politics in our daily lives

Pages: 1

(275 words)

Expanding Freedoms

Pages: 1

(275 words)

portofolio

Pages: 1

(275 words)

Blog Post

Pages: 1

(275 words)